UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2004

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                                   ----------

                          LIFESTREAM TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

                        COMMISSION FILE NUMBER 000-29058

         NEVADA                                                   82-0487965
---------------------------                                  -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

              510 Clearwater Loop, Suite 101, Post Falls, ID 83854
              ----------------------------------------------------
                    (Address of principal executive offices)

                                 (208) 457-9409
                                 --------------
              (Registrant's telephone number, including area code)

         SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:

                                      NONE

         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                          COMMON STOCK, $.001 PAR VALUE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [_]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year ended June 30, 2004 ---
$2,603,257.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $3,959,692 as of September 24, 2004, based
upon the closing price of $0.024, on the Over-the-Counter Bulletin Board
("OTCBB").

As of September 28, 2004, 199,268,735 shares of the registrant's $.001 par value
common stock were outstanding.

<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report is incorporated by reference
to the definitive proxy statement for the registrant's 2004 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report.

Transitional Small Business disclosure format.   Yes [ ]  No [X]

                                       2
<PAGE>
                          LIFESTREAM TECHNOLOGIES, INC.

      ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2004


                                                                            Page
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                                     PART I

Item 1.  Business                                                              4
Item 2.  Properties                                                           13
Item 3.  Legal Proceedings                                                    13
Item 4.  Submission of Matters to a Vote of Security Holders                  14


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters             14
Item 6.  Management's Discussion and Analysis or Plan of Operation            16
Item 7.  Consolidated Financial Statements                                    32
Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosures                                            54
Item 8A. Controls and Procedures                                              54
Item 8B. Other Information                                                    54

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act                    55
Item 10. Executive Compensation                                               55
Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                      55
Item 12. Certain Relationships and Related Transactions                       55
Item 13. Exhibits List and Reports on Form 8-K                                55
Item 14. Principal Accountant Fees and Services                               55

Signatures                                                                    56

Exhibit Index                                                                 57

                                       3
<PAGE>
                                     PART I

Certain disclosures in this Annual Report on Form 10-KSB, including the
information incorporated by reference herein, include certain forward-looking
statements within the meaning of the safe harbor protections of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements that include words such as
"believe," "expect," "should," intend," "may," "anticipate," "likely,"
"contingent," "could," "may," "estimate," or other future-oriented statements,
are forward-looking statements. Such forward-looking statements include, but are
not limited to, statements regarding our business plans, strategies and
objectives, and, in particular, statements referring to our expectations
regarding our ability to continue as a going concern, generate increased market
awareness of our current cholesterol monitor, realize improved gross margins,
and timely obtain required financing. These forward-looking statements involve
risks and uncertainties that could cause actual results to differ from
anticipated results. The forward-looking statements are based on our current
expectations and what we believe are reasonable assumptions given our knowledge
of the markets; however, our actual performance, results and achievements could
differ materially from those expressed in, or implied by, these forward-looking
statements. Factors, within and beyond our control, that could cause or
contribute to such differences include, among others, the following: those
associated with our marketing of a relatively new total cholesterol monitoring
device for consumers in a relatively unestablished product marketplace, consumer
preferences, perceptions and receptiveness with respect to our monitor, our
critical capital raising efforts in an uncertain and volatile economical
environment and any dilutive effect these efforts may have on the market price
of our common stock, our ability to maintain existing relationships with
critical vendors and customers, our cash-preservation and cost-containment
efforts, our ability to retain key management personnel, our inexperience with
advertising, our competition and the potential impact of technological
advancements thereon, the impact of changing economic, political, geo-political
and regulatory environments on our business, the impact on demand for devices
such as ours due to the availability, affordability and coverage terms of
private and public medical insurance, our exposure to product liability claims,
as well as those factors discussed in "Item 1 - Business," "Item 6 -
Management's Discussion and Analysis or Plan of Operation," particularly the
discussions under "Substantial Doubt Regarding Our Ability to Continue as a
Going Concern" and "Risks and Uncertainties," and elsewhere in this Form 10-KSB.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and those detailed from time to time in our reports and
filings with the United States Securities and Exchange Commission that attempt
to advise interested parties of the risks and factors that are likely to affect
our business.

ITEM 1.  BUSINESS

AN INTRODUCTION

We market a proprietary over-the-counter, total cholesterol-monitoring device
for at-home use by both health-conscious and at-risk consumers ("our cholesterol
monitor"). Our cholesterol monitor enables an individual, through regular
at-home monitoring of their total cholesterol level, to continually assess their
susceptibility to developing cardiovascular disease, the single largest cause of
premature death and permanent disability among adult men and women in the United
States of America ("U.S.").

Once an individual is diagnosed with an elevated total cholesterol level, our
cholesterol monitor enables an individual to readily ascertain and track certain
collective benefits being derived from diet modification, an exercise regimen
and drug therapy. By doing so, we believe that an individual's long-term
adherence to an effective cholesterol-lowering program is reinforced.

We introduced our current consumer cholesterol monitor to the retail marketplace
in October 2002. It is the successor to a cholesterol monitor that we first
introduced in January 2001.

Our current base of customers primarily consists of national and regional drug
store chains, and, to a lesser extent, pharmacy-featuring grocery store chains,
specialty catalog and internet-based direct marketers and independent
pharmacies. To date, our ability to conduct significant marketing activities
critical to building broad market awareness of our cholesterol monitor has been
limited due to financial constraints. However, during our fiscal year ended June
30, 2004 we were successful in obtaining a portion of the long-term financing we
sought to allow us to begin conducting marketing programs. We continue to
require additional long-term financing to allow us to continue conducting
marketing activities.


                                       4
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

CHOLESTEROL MONITOR
Our cholesterol monitor has a suggested retail price of $119.95, but is
routinely offered by certain of our more prominent retail store chain customers
at a price below the psychologically important $100.00 price point for many
consumers.

Our cholesterol monitor:
    o    Provides a quantified total cholesterol reading from a single drop of
         blood within three minutes without any prior fasting,
    o    Meets the measurement precision guidelines set forth by the National
         Cholesterol Education Program ("NCEP"),
    o    Classifies individual test results using the NCEP's "desirable,"
         "borderline" and "high" risk-level categories for total cholesterol in
         adults,
    o    Utilizes inexpensive, disposable dry-chemistry test strips,
    o    Computes an individual's rolling average total cholesterol level based
         on their six most recent test results,
    o    Allows for the secure storage, via encryption, of up to 200
         chronologically-dated test results onto an optional smart card, which
         is inserted into an existing slot on the monitor, for subsequent
         retrieval and longer-term trend analysis,
    o    Is compact, lightweight and portable with dimensions of approximately
         5.50" x 4.00" x 1.75" and a weight of approximately one pound,
    o    Is warranted for one year from defects in materials or workmanship, and
    o    Will soon incorporate the newly FDA cleared Health Risk Assessment
         (HRA), which displays a full Health Risk Assessment after taking a
         three-minute total cholesterol test and inputting eight additional risk
         factors including gender, age, height, weight, diabetic status,
         smoker/non-smoker, systolic and diastolic blood pressure, and HDL
         break-out from a recent lipid profile.

Our "Plus-Edition" Cholesterol Monitor, which has a suggested retail price of
$129.95, includes a cholesterol monitor, a Data Concern" Personal Health
Card(R), a complementary CD-ROM software program, a serial cable and an extended
three-year warranty. By connecting our cholesterol monitor to a personal
computer via the serial cable and installing our software, an individual can
compute a longer-term rolling average of their historical test results and
convert such into detailed, easy-to-understand printable charts. We believe that
these value-added analytical features enable an individual to more readily
ascertain and track the collective benefits being derived over an extended
period of time from diet modification, an exercise regimen and drug therapy,
thereby further reinforcing their ongoing adherence to an effective
cholesterol-lowering program.

RELATED SUPPLIES AND ACCESSORIES

We offer the following supplies and accessories for use with our cholesterol
monitor:

    o    TEST KIT REFILLS. Our test kit refills, which include six individually
         packaged test packets, have a suggested retail price of $19.95. Each
         single-use, disposable testing packet contains a dry-chemistry total
         cholesterol test strip, a sterile lancet, an alcohol swab, and a
         band-aid.

    o    "DATA CONCERN" PERSONAL HEALTH CARD(R). Our "Data Concern" Personal
         Health Card(R) is individually packaged and has a suggested retail
         price of $19.95. The Personal Health Card(R) stores up to 200
         cholesterol test results for subsequent retrieval and longer-term trend
         analysis.

CONSUMER MARKETPLACE
The American Heart Association ("AHA"), as well as the National Heart, Lung and
Blood Institute's ("NHLBI") renowned Framingham Heart Study ("FHS"), have
identified elevated total cholesterol as a primary contributor to coronary heart
disease ("CHD") and other forms of cardiovascular disease ("CVD"). In its "2003
Heart and Stroke Statistical Update," the AHA estimates the following for U.S.
adults age 20 and older, based on the most recent available data:

                                       5
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

CONSUMER MARKETPLACE (CONTINUED)
    o    CHD is the single largest cause of premature death and permanent
         disability among both men and women,
    o    42 million adults have "high" total cholesterol levels (240 +
         milligrams per deciliter),
    o    63 million adults have "borderline-high" total cholesterol levels (200
         to 239 milligrams per deciliter),
    o    50% of the men and 63% of the women who died suddenly from CHD in 2000
         had no previous symptoms,
    o    The lifetime risk of developing CHD after age 40 is 49% for men and 32%
         for women,
    o    650,000 adults were expected to have a new coronary attack during 2003,
    o    450,000 adults were expected to have a recurrent coronary attack during
         2003,
    o    $129.9 billion of CHD-related annual costs (including lost productivity
         and morbidity) in 2000.

Additionally, the NHLBI established the National Cholesterol Education Program
("NCEP") in 1985 to educate consumers and medical professionals about the
importance of knowing one's total cholesterol level and to establish guidelines
for the detection, evaluation and treatment of elevated total cholesterol in
adults. The NCEP recommends that all adults obtain a complete lipoprotein
profile (i.e., total cholesterol, LDL "bad" cholesterol, HDL "good" cholesterol
and triglycerides), which typically is obtained through a general physician, at
least once every five years. Once an individual is diagnosed with elevated total
cholesterol and prescribed a cholesterol-lowering drug, the NCEP recommends
subsequent testing as frequent as every six weeks. In its May 2001 report
entitled "Detection, Evaluation, and Treatment of High Blood Cholesterol in
Adults," the NCEP reinforced its historical endorsement of intensive
cholesterol-lowering treatments for adults with CHD but added a new major focus
on primary prevention, including intensive cholesterol-lowering treatments for
adults possessing multiple CHD risk factors.

SALES AND MARKETING EFFORTS Our ability to conduct significant marketing
activities critical to building broad market awareness of our cholesterol
monitor has historically been severely limited due to financial constraints. As
a result, prior to fiscal 2004, our marketing efforts were limited to using our
current base of critical employees to sustain, cultivate and build upon our
existing relationships with national and regional drug and pharmacy-featuring
retail store chains, and, to a lesser extent, specialty catalog and
internet-based direct marketers and independent pharmacies. During fiscal 2003,
our specific marketing activities principally consisted of periodically
participating in cooperative advertising campaigns with certain of our existing
retail customers, providing device brochures and discount coupons to pharmacies
for subsequent distribution to their customers, occasionally participating in
trade shows, and conducting telephonic and in-person presentations to certain
potential customers. In September 2003, we secured a portion of the long-term
financing we sought to enable us to move forward with our marketing plan and, in
October 2003 we began a targeted radio advertising campaign. In February 2004,
we secured additional financing allowing us to continue implementing our
targeted radio advertising campaign. Although we are contractually obligated to
continue the radio advertising campaign through January 7, 2005, due to cash
flow constraints we ceased placing media ads in mid-September 2004. Unless the
advertising agent is able to find substitute sponsors for our committed
advertising spot times, we may be required to pay for the remaining contractual
obligation of $864,248. Any future marketing campaigns will be highly dependent
upon our ability to obtain additional financing.

We recently developed a continuing education program, which was introduced in
the first quarter of fiscal 2005. The purpose of the continuing education
program is to broaden awareness and educate pharmacists on the benefits of our
product. In addition, we developed a consumer point-of-sale awareness program
for those patients purchasing certain cholesterol-lowering prescriptions at a
major retailer, which began in May 2004. Finally, we have attempted to promote
our corporate web sites (www.lifestreamtech.com, www.knowitforlife.com and
www.testyourcholesterol.com) where we provide, among other things, educational
information regarding cholesterol, online ordering of products and a retail
store locator. The information on our websites is not incorporated into this
Report.

We continue to pursue further penetration into the retail marketplace with our
cholesterol monitor by establishing additional relationships with similar retail
organizations. Over the long term, we aspire to add high-volume,
mass-merchandising retail chains.

                                       6
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

SALES CONCENTRATIONS WITH MAJOR CUSTOMERS
Our past sales have been, and we currently expect that our sales for the
foreseeable future will be, dependent upon a few major customers. Three
customers accounted for 22%, 12%, and 10% of our consolidated sales during
fiscal 2004. The same three customers accounted for 23%, 7% and 24% of our
consolidated sales during fiscal 2003. We do not engage in long-term supply
contracts with these major customers and it is therefore possible that any of
our major customers could cease purchasing our products at any time, which would
have a material adverse impact on our business, and as a result, on our results
of operations, liquidity and cash flows.

We primarily attribute our historical sales concentrations to our limited
revenue base, our focus on establishing relationships with national and regional
drug and pharmacy-featuring grocery store and retail chains, and our inability,
given financial constraints, to conduct ongoing marketing activities critical to
the establishment of a broad retail customer base. See "Management's Discussion
and Analysis or Plan of Operation - Consolidated Results of Operations",
"Consolidated Liquidity and Capital Resources" and "Risks and Uncertainties" for
further details.

EMPLOYEES
Our full-time employees at June 30, 2004 and 2003, distributed among our
functional areas, were as follows:

                                               June 30, 2004     June 30, 2003
                                               -------------     -------------

    Administration and Finance.................       7               10
    Product Assembly, Testing and Packaging....       8                5
    Sales, Marketing and Customer Service......       2                2
    Information Technical Services.............       1                0
                                                     --               --
        Total Employees........................      18               17
                                                     --               --

We did not employ any part-time employees during either fiscal 2004 or 2003.

We currently engage our former Chief Information Technology and former Chief
Financial Officer on an as-needed consulting basis.

None of our employees currently are parties to collective bargaining agreements.
We consider our employee relations overall to be satisfactory. See "Risks and
Uncertainties - We Are Dependent Upon Our Key Management Personnel", for details
regarding our continuing dependency on key management personnel.

PRINCIPAL VENDORS AND RELATED ASSEMBLY, PACKAGING AND DISTRIBUTION OPERATIONS

Our current principal vendors are as follows:

    o    ROCHE DIAGNOSTICS GMBH. We are party to a licensing and manufacturing
         agreement with Roche Diagnostics GmbH (Roche) of Mannheim, Germany. The
         initial term of the agreement expires on December 31, 2004 and, absent
         default by either party, the agreement automatically renews for
         additional one year terms unless either party gives 12 months written
         notice of termination. Neither party has given written notice of
         termination as of the date of the Report. Under the agreement, we
         procure the following:

         Disposable, Dry-Chemistry Test Strips. Our agreement with Roche
         currently grants us the exclusive right to market and distribute its
         proprietary test strips in the U.S. We are required to purchase our
         supply of dry-chemistry test strips utilized in our cholesterol
         monitors exclusively from Roche. As we did not meet the calendar 2002
         minimum sales threshold set forth in the agreement, Roche began
         prospectively assessing us a 10% price surcharge on purchases in
         exchange for agreeing to maintain our U.S. exclusivity. This surcharge
         was based on our revised sales forecasts for the duration of the
         agreement.

                                       7
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

PRINCIPAL VENDORS AND RELATED ASSEMBLY, PACKAGING AND DISTRIBUTION OPERATIONS
(CONTINUED)

         Optics Technology. Our agreement with Roche licenses us its proprietary
         optics technology, which we utilized in our predecessor cholesterol
         monitor in exchange for an agreed-upon royalty per device sold.
         However, we recognized no royalty obligation on sales of our current
         consumer device, which we began selling in October 2002, as we viewed
         the re-engineered optics technology used in this device as being
         proprietary to us, and not Roche. In May 2003, Roche asserted in a
         letter to us that the subject optics technology was, in their opinion,
         still subject to royalties under our agreement. Given our continuing
         material dependency on Roche for its test strips and in order to avoid
         jeopardizing such relationship, we responded in July 2003 with a letter
         proposing a substantially lower royalty on each device sold.
         Negotiations are currently ongoing and we have recorded a liability in
         the amount we believe is necessary for full and final settlement of
         this matter based on the latest negotiations. We believe that any
         incremental royalty obligation resulting from these negotiations would
         not be material to our expected future consolidated financial
         statements.

    o    SERVATRON INC. Our cholesterol monitor and related calibration keys are
         being assembled, on an individual purchase order basis, by Servatron
         Inc. in Spokane, Washington.

    o    OPTO CIRCUITS (INDIA) LIMITED. In October 2003, we began outsourcing a
         portion of our cholesterol monitor assembly, on an individual purchase
         order basis, to Opto Circuits (India) Limited in Bangalor, India.

Although we are susceptible to short-term disruptions that could materially
adversely impact our business, financial condition, results of operations and
cash flows, we believe that the services currently procured from Servatron and
Opto Circuits could be obtained from a number of companies available to us in
the marketplace. We also believe there is a suitable replacement to Roche's
dry-chemistry total cholesterol test strip currently available to us in the
marketplace, however we are precluded from procuring test strips from any other
source through December 2004 due to our current agreement with Roche. Should we
ever lose our U.S. exclusivity for Roche's total cholesterol dry-chemistry test
strips, our cholesterol monitor could become subject to more direct competition,
including potential direct competition from Roche itself.

Our facilities, as well as the applicable facilities of Servatron, Opto Circuits
and Roche, meet the FDA's Quality System Requirement. All assembled and
individually packaged monitors and bulk packaged calibration keys from Servatron
and Opto Circuits, as well as all bulk packaged test strips from Roche, are
transferred from their respective facilities to our facility in Post Falls,
Idaho for random quality assurance audits, warehousing, and shipping to
customers. We believe that our production facilities and capabilities, as well
as those of Servatron, Opto Circuits and Roche, will be sufficient through at
least fiscal 2005. We have utilized, and plan to continue to utilize, common
carriers for all of our product shipping needs.

PRODUCT RESEARCH AND DEVELOPMENT
We incurred product research and development expenses of $57,510 and $296,963 in
fiscal 2004 and 2003, respectively, principally in connection with the
re-engineering activities associated with developing and refining our current
cholesterol monitor. As these activities were substantially completed as of our
fiscal 2003 second quarter ended December 31, 2002, we have subsequently
incurred, and currently expect to continue to incur, nominal product research
and development expenditures for the foreseeable future.

In view of financial constraints, we have suspended active development,
manufacturing and marketing efforts relating to products other than our
cholesterol monitors and related products and accessories. Such product
initiatives primarily related to the development of our professional cholesterol
monitor and a software product called Privalink that was intended to enable
interconnectivity between various medical diagnostic devices and the
consolidated secured storage, via encryption, of related test results and other
personal and health-related data onto a smart card and via the Internet into a
remotely maintained and password accessible database. We will continue to fill
any dry-chemistry test strip orders passively received for our professional
devices on an ongoing basis, as these strips are the same strips utilized by our
cholesterol monitor. As our future financial condition permits, we will consider
whether the recommencement of activities relating to other product development
is warranted.

                                       8
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

INTELLECTUAL PROPERTY RIGHTS
We are dedicated to obtaining, maintaining and enforcing the intellectual
property rights covering our corporate image and proprietary technology, both in
the U.S. and abroad. Accordingly, we are actively engaged in creating and
protecting our copyright, trademark, patent, and trade secret assets.

We own various copyright registrations primarily related to the software used by
our current and predecessor cholesterol monitors and our "Data Concern" Personal
Health Smart Card. We own various U.S. trademark registrations primarily related
to the "Lifestream" names and logo designs, as well as the trade names of our
various products such as "Cholestron", "The Data Concern", and "Personal Health
Card". We also own pending U.S. trademark applications for the following
trademarks: Lifestream, Lifestream Technologies (and logo design), Know It for
Life, Privalink, Personal Data Key, Personal Document Key, Personal Financial
Key, and Personal Health Key. Although we believe that all of these marks are
entitled to registration on the Principal Register, the outcome of the
application process for trademark registration cannot be predicted with
certainty.

We own various U.S. patents primarily related to the appearance and technology
utilized in our professional and consumer cholesterol monitors, as well as for
HDL test strip technology. During fiscal 2004, we obtained FDA approval to
utilize U.S. Patent No. 6,602,469 which claims aspects of our cholesterol
monitor including the display of the user's comparative cardiac age based on the
test result and diagnostic information entered directly into the device, such as
the user's age, weight, history of heart disease and other relevant factors.
This patent also covers a test strip verification technique that allows the
device to activate only for authorized test strips used prior to the expiration
date.

We further own pending United States, PCT International Patent Applications and
pending national phase patent applications for the technology claiming a number
of inventions pertaining to our devices, smart card technology, secure medical
record maintenance technology, security related features, and a range of smart
card-enabled health-related and commercial applications. Although we believe
that all of the inventions claimed in these applications are patentable based on
the prior art known to us, the outcome of the patent application process cannot
be predicted with certainty.

See "Business -Prior Corporate History" for further details regarding our past
products and product initiatives.

COMPETITION

We currently compete, directly or indirectly, with the following products and
representative firms:

    o    EQUIVOCAL, NON-INSTRUMENT-BASED, SINGLE-USE, DISPOSABLE TOTAL
         CHOLESTEROL SCREENING TESTS. These inexpensive screening tests, which
         are marketed to consumers and medical professionals, employ very basic
         color metric technology. An individual, usually without any significant
         advance preparation such as fasting, deposits one or more drops of
         blood onto a test card, waits several minutes and then visually
         interprets the resulting color card reaction to an accompanying table
         that broadly converts various color shades into approximate levels of
         total cholesterol. If an elevated total cholesterol level is indicated,
         the accompanying instructions typically advise the individual to timely
         consult a medical doctor.

    o   QUANTITATIVE, INSTRUMENT-BASED, REUSABLE DIAGNOSTIC MEASURING DEVICES.
        These diagnostic measuring devices vary widely as to their scope,
        capabilities and ease-of-use and are marketed to either consumers or
        medical professionals. Prices range from approximately one hundred
        dollars for basic cholesterol monitors, such as ours, to several
        thousand dollars for more sophisticated devices, such as bench-top
        analyzers for high-volume laboratories. Basic devices typically require
        little or no advance preparation (e.g. fasting, etc.) and utilize a
        single blood drop deposited onto a disposable, single-use, dry chemistry
        test strip that is formulated for the specific blood component being
        measured. Certain devices, such as ours, are currently dedicated to
        measuring a single blood component while others are capable of measuring
        a number of individual blood components through separately conducted
        tests. More sophisticated devices typically require prior fasting and
        utilize a vile of blood deposited into a test cassette for the
        simultaneous measurement of multiple blood components. All such devices
        are designed and engineered to provide clinically accurate quantified
        measurements within several minutes. Firms marketing basic devices would
        include, but not necessary are limited to, us


                                       9
<PAGE>

ITEM 1. BUSINESS (CONTINUED)

COMPETITION (CONTINUED)
        and Polymer Technology Systems, Inc. (Polymer). We have instituted a
        patent infringement suit against Polymer that is described elsewhere in
        this prospectus. Firms marketing more sophisticated devices would
        include, but not necessary are limited to, Cholestech Corp.

We continue to emphasize the procurement of shelf space among national and
regional drug and pharmacy-featuring grocery store chains. To a significantly
lesser extent, we seek a retail presence with specialty catalog and
Internet-based direct marketers and independent pharmacies. Over the longer
term, we aspire to add high-volume, mass-merchandising retail chains.

Within the consumer retail store chains and specialty catalog-based direct
marketers that currently carry our cholesterol monitor, we have experienced some
indirect competition from screening tests, but little, if any, direct
competition from measuring devices. With respect to consumer retail store chains
that currently do not carry our cholesterol monitor and with which we aspire to
ultimately establish a vendor relationship, the competitive presence appears at
this time to be substantially the same. In the internet-based, e-commerce
marketplace, we have continued to primarily note the direct competitive presence
of Polymer's devices.

Based on our current knowledge of potentially competitive products in the
consumer marketplace, Polymer's the CardioChek Analyzer is our primary
competitor. The CardioCheck Analyzer is capable of simultaneous measuring, and
providing individually quantified measures of, total cholesterol, HDL
cholesterol, LDL cholesterol and triglycerides from a single drop of blood
deposited onto a lipid-panel. Polymer additionally represents that its
CardioChek Analyzer contains updated analysis software, that is upgradeable to
support future dry-chemistry test strips under development, is more
user-friendly to operate, and is more trouble-free, including being more
tolerant of operator errors. The CardioChek appears to have a suggested retail
price of $169.95.

We believe that our primary competitive advantage at this time is the retail
shelf space presence that we have obtained with certain leading national drug
and pharmacy-featuring grocery store chains. We believe, although there can be
no assurance of such, that these retailers will be reluctant for the foreseeable
future to carry a directly competing device given that the market for consumer
cholesterol devices is still in its early formative stages. From a device
standpoint, we currently believe that the primary competitive advantages of our
cholesterol monitor at this time, as compared to Polymer's devices, are that,
for an individual who is merely concerned with obtaining a clinically accurate
quantified measurement of their total cholesterol level, it has a lower
suggested retail price, often being promoted by certain of our more prominent
existing retail chain customers below the psychological important one hundred
dollar price point, and has superior historical test storage capabilities.
However, to the extent that an individual is interested in additionally
obtaining quantified measurements of total cholesterol's sub-components or other
blood components, we currently are at a technological disadvantage.

Many of the firms that we currently directly or indirectly compete against in
the consumer marketplace have substantially greater financial, technical,
research and other resources, and larger, more established marketing, sales,
distribution and service organizations, than we do. As such, there can be no
assurance that we will be able to maintain our competitive position in the
future.

GOVERNMENTAL REGULATORY ENVIRONMENT
Our developing and marketing of total cholesterol monitoring devices subjects us
to the oversight of the United States Food and Drug Administration (FDA) and
similar governmental regulatory agencies abroad. The FDA Act provides for
comprehensive regulation of all stages of development, manufacturing,
distribution and promotion of "medical devices" in the U.S. Products intended
for use in the collection, preparation, and examination of specimens taken from
the human body, such as our cholesterol monitor, are considered a subcategory of
"medical devices." The same regulations apply to consumer diagnostic medical
devices as apply to professional diagnostic medical devices.

There are two primary routes by which to bring a medical device to market in the
U.S.: the Pre-Market Approval Application and the 510(k) Pre-Market
Notification. The Pre-Market Approval Application requires a comprehensive
review of specified pre-clinical and clinical data, which results in a finding
as to whether a device is safe and effective for its designated use. The 510(k)
Notification permits marketing upon a demonstration to the FDA's satisfaction


                                       10
<PAGE>

ITEM 1. BUSINESS (CONTINUED)

GOVERNMENTAL REGULATORY ENVIRONMENT (CONTINUED)
that the device is substantially equivalent to an approved device already in
commercial distribution. Generally, the clearance process can require extended
periods of testing, both prior to and after submissions to the FDA. FDA review
of submissions by a company can entail significant amounts of time and money.
There can be no assurance that the FDA or any similar governmental regulatory
agency abroad will grant market clearance for any particular medical device.

The FDA uses a classification system, i.e., Class I, II or III, to determine the
level of regulation a product will require and the approval process that applies
to the device. The classification system is based on the "potential risk to the
user" with Class I being "low risk," Class II being "moderate risk" and Class
III being "high risk." Because all new products to the marketplace after 1976
are automatically classified as Class III devices (unless otherwise reclassified
by the FDA) in any 510(k) Notification, the applicant must, among other things,
demonstrate that the product to be marketed is "substantially equivalent" to
another legally marketed device in performance, design, safety and intended use
to avoid the more rigorous approval process associated with Class III devices.

The FDA also requires the integration of their quality system into any facility
it registers as a "medical device facility". The quality system requirement
encompasses product development and manufacturing, customer service, incident
reporting and labeling control. Our facilities, as well as the applicable
facilities of Servatron, Opto Circuits and Roche, are registered with the FDA
and meet the quality system requirements.

In October 1998, we received the FDA's order of "substantial equivalence" to
Boehringer Mannheim's Accu-Trend Instant Plus home diabetes test, a Class II
instrument already in commercial distribution and received market clearance of
our professional cholesterol monitor.

In February 1999, the Centers for Disease Control and Prevention, or CDC,
granted our professional monitor for adults a waiver from the requirements of
the Clinical Lab Improvement Amendments of 1988, or CLIA. A waiver of the
Amendments is granted by the CDC to products that meet strict ease-of-use,
accuracy and precision guidelines. The significance of the Amendment-waiver was
that it allowed us to market our professional monitor for adults to healthcare
professionals in medical clinics, hospitals, pharmacies and other settings
without meeting extensive CDC regulatory requirements.

In February 2000, we submitted 510(k) Notification for our consumer cholesterol
monitor and received the FDA's market clearance for such device on July 25,
2000.

In March 2000, the American Medical Association granted a revision to their
Conventional Procedural Code to include a total cholesterol finger stick test,
regardless of the instrument type or sample collection. This revision was
granted on the basis of our submission to the Association's Conventional
Procedural Code Editorial Panel proving widespread use and medical utility. As a
result, a total cholesterol test performed with our device is cleared for public
and private health plan reimbursements under the Conventional Procedural Code
coding system.

All products manufactured or distributed by us pursuant to FDA clearances or
approvals remain subject to pervasive and continuing regulation by the FDA and
certain state agencies, including record keeping requirements and reporting of
adverse experience with the use of the device. In addition, labeling and
promotional activities remain subject to scrutiny by the FDA.

We have no material environmental compliance requirements and we have not
incurred any material costs in connection with such.

CORPORATE HISTORY

1989              Lifestream Development Partners was organized by two investors
                  as a general partnership for the purpose of developing a total
                  cholesterol measuring device.

June 1992         The principals of Lifestream Development Partners
                  organized Lifestream Diagnostics, Inc. as a Nevada
                  corporation.

                                       11
<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

CORPORATE HISTORY (CONTINUED)

August 1992       Lifestream Development Partners transferred its net
                  assets to Lifestream Diagnostics in exchange for common
                  shares.

February 1994     Lifestream Diagnostics completed a plan of legal
                  reorganization to become a public company whereby it executed
                  an exchange agreement with, and became a subsidiary of, an
                  inactive public shell company incorporated in Nevada.
                  Concurrent with this reorganization, the public shell company
                  adopted our current name, Lifestream Technologies, Inc., and
                  our common shares began trading on the Over-The-Counter
                  Bulletin Board Market under the ticker symbol "LFST."

June 1996         We acquired an initial 20% ownership interest in Secured
                  Interactive Technologies, Inc. with whom we had previously
                  established a development alliance to jointly create and
                  promote a software technology.

January 1999      We introduced our professional total cholesterol
                  monitoring device for adults to the medical community,
                  commenced limited revenue-generating operations related
                  thereto and ceased being a development-stage company. However,
                  shortly thereafter, we elected to redirect our limited
                  operating and financial resources into the development of an
                  over-the-counter, total cholesterol monitoring device for
                  at-home use by adult consumers, for which we envisioned, and
                  continue to envision, substantially greater revenue potential
                  over the longer term.

September 1999    We acquired the remaining 80% ownership interest in
                  Secured Interactive by effectuating a merger whereby all of
                  the remaining outstanding common shares of Secured Interactive
                  were exchanged for shares of our common stock.

July 2000         We received the over-the-counter market clearance from
                  the FDA for our consumer cholesterol monitor thereby allowing
                  us to proceed with related production and marketing.

October 2000      Our common shares began trading on the American Stock
                  Exchange under the ticker symbol "KFL."

October 2003      Our common shares ceased trading on the American Stock
                  Exchange and began trading on the Over-the-Counter Bulletin
                  Board under the symbol "LFTC".

December 2003     Following receipt of approval from our stockholders, we
                  increased the number of shares of common stock we are
                  authorized to issue to 250 million shares.

April 2004        Following receipt of approval from our stockholders, we
                  increased the number of shares of common stock we are
                  authorized to issue to 750 million shares.

AVAILABLE SEC FILINGS
Our annual, quarterly and other periodic filings with the SEC, including any
amendments thereto, may be accessed, at no cost, directly through the SEC's web
site at www.sec.gov. We also provide links to these filings, filings of
ownership reports made by our officers, directors and principal shareholders, as
well as copies of our press releases in the "Investors" section of our web site
located www.lifestreamtech.com. The information found on our web site is not
part of this Report or any other report we file with the SEC.

                                       12
<PAGE>

ITEM 2.  PROPERTIES

All of our operations continue to be located in modern leased premises within
the Riverbend Commerce Park in Post Falls, Idaho, with the address of our
administrative corporate offices being 510 Clearwater Loop, Suite 101, Post
Falls, Idaho 83854. During fiscal 2003 we decreased the number of square feet
leased from 19,019 to 13,856. We currently operate under two separate leases
including 7,465 square feet of assembly, testing, packaging, warehousing and
shipping space, which expires October 31, 2004, and 6,391 of office space, which
expires May 31, 2005. We believe that suitable alternative lease space is
readily available to us at similar lease rates in proximity to our current
location should such become necessary or desirable.

We currently believe that our current physical facilities will be sufficient,
absent any unforeseen significant sales increase, to accommodate all of our
business needs through at least fiscal 2005.

We currently do not have, nor do we anticipate making, any investments in real
estate or related securities within the foreseeable future.

We believe our properties are in good condition, well-maintained and generally
suitable and adequate to carry on our business. We also believe that we maintain
sufficient insurance coverage on all of our real and personal property.

ITEM 3.  LEGAL PROCEEDINGS

Legal Proceedings
We, including our subsidiaries, are periodically involved in incidental
litigation and administrative proceedings primarily arising in the normal course
of our business. In our opinion, our gross liability, if any, and without any
consideration given to the availability of indemnification or insurance
coverage, under any pending or existing incidental litigation or administrative
proceedings would not materially affect our financial position, results of
operations or cash flows.

Our wholly owned subsidiary, Lifestream Diagnostics, Inc., is the plaintiff in
patent infringement litigation, Civil Action No. CV00-300-N-MHW, against Polymer
Technology Systems, Inc., et al, currently pending in the United States District
Court for the District of Idaho. The patent-in-suit is Thakore, U.S. Patent No.
3,135,716 (see "Business - Intellectual Property Rights" for further details).
We allege willful patent infringement and seek Polymer's immediate
discontinuance of the HDL test strip technology currently utilized in their
diagnostic device to which we claim ownership. The defendants have brought a
number of counterclaims, including antitrust, unfair competition, tortious
interference with business relations and patent misuse, and have asserted
unspecified general damages.

The Court conducted a "claim interpretation" hearing (also called a "Markman"
hearing) January 29-30, 2003, and issued a Memorandum Decision on May 28, 2003,
ruling against our assertion of patent infringement. Based on the Court's claim
interpretation decision, the parties jointly requested entry of a judgment of
non-infringement, a stay of the counterclaims, and a certification that the
claim interpretation decision is ripe for appeal. The Court entered this order
on August 21, 2003. We timely filed a Notice of Appeal to the Court of Appeals
for the Federal Circuit and were assigned an appeal number of 03-1630. All
briefs were timely filed, argument was heard on May 7, 2004, and the appeal was
submitted for decision on that date. In August 2004, the Court of Appeals
reversed the District Court's ruling and remanded the matter back to the
District Court for a new hearing.

Following the remand, the parties returned to settlement negotiations. Pursuant
to these negotiations, the parties have now entered into a Letter of Intent
requiring the parties to negotiate in good faith an agreement that would, among
other things, resolve the litigation through a license under U.S. Patent No.
3,135,716. A final agreement has not yet been reached, and the litigation
remains pending before the Idaho District Court.

Although we believe that our claims are well founded in law and fact, and
believe that the counterclaims and defenses alleged by the defendants are
baseless, the outcome of this litigation cannot be predicted with certainty.
Should the District Court not rule in our favor, we may be unsuccessful in
collecting future royalties from parties utilizing this technology and as a
result, may reduce the net realizable value requiring a write down of the patent
on our consolidated financial statements.

                                       13
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 28, 2004, a special meeting of our stockholders was held, at which,
stockholders authorized an increase in the number of shares of common stock we
are authorized to issue from 250,000,000 to 750,000,000. On the March 4, 2004
record date for the meeting, there were 154,475,276 shares of common stock
issued and outstanding. At the meeting, holders of 108,649,129 shares of common
stock were present, in person or by proxy. Of the shares present, 104,064,854
shares were voted in favor of the increase in authorized shares, 4,327,267
shares were voted against the increase and 257,008 shares abstained.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK PRICE HISTORY
Since October 31, 2003, our common shares have been traded on the
Over-the-Counter Bulletin Board under the symbol "LFTC". From October 10, 2000
until October 30, 2003, our common shares were traded on the American Stock
Exchange under the ticker symbol "KFL". As of June 30, 2004, we had
approximately 7,000 stockholders of record.

The following table sets forth, for the fiscal quarters indicated, the high and
low closing prices for our common stock as reported by the AMEX and, commencing
October 31, 2003, by the Over-the-Counter Bulletin Board.

                                                     HIGH              LOW
Fiscal 2004:
         First Quarter.........................      $0.26             $0.13
         Second Quarter........................      $0.18             $0.10
         Third Quarter.........................      $0.13             $0.05
         Fourth Quarter........................      $0.05             $0.03

Fiscal 2003:
         First Quarter.........................      $0.85             $0.34
         Second Quarter........................      $0.35             $0.10
         Third Quarter.........................      $0.25             $0.11
         Fourth Quarter........................      $0.31             $0.10

DIVIDEND POLICY
Our Board of Directors has not declared or paid any cash dividends since our
inception. As the Board of Directors' current policy is to retain any and all
earnings to fund our ongoing operations and growth, it does not anticipate
declaring or paying any cash dividends for the foreseeable future. We are
currently restricted under Nevada corporate law from declaring any cash
dividends due to our current working capital and stockholders' deficits.

RECENT SALES OF UNREGISTERED SECURITIES
In reliance upon the registration exemption provisions of Section 4(2) of the
Securites Act of 1933, as amended, and the rules and regulations thereunder, we
issued the following securities during our fiscal quarter ended June 30, 2004.
In each of these transactions, the investor(s) (a) had access to business and
financial information about us, (b) was an accredited investor and/or had such
experience in business and financial matters so that it was able to evaluate the
risks and merits of an investment in us, (c) acknowledged that the securities
were not registered under the Securities Act of 1933 and could not be
transferred except in compliance with applicable securities laws, and (d)
received securities bearing a legend describing the restrictions referred to in
clause (c) above. Unless otherwise noted, no placement agent or broker dealer
participated in the transaction and no commissions or similar compensation was
paid.

During our fiscal 2004 fourth quarter we issued 18,000,000 shares of our common
stock to two institutional investors upon their conversion of convertible notes
with a principal face amount of $900,000.

                                       14
<PAGE>

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  (CONTINUED)

In May 2004, we issued 350,000 shares to a consultant, our former Chief
Financial Officer.

In May 2004, we issued a convertible promissory note to Capital South Financial
Services in the amount of $71,700 in satisfaction of the balance owed for the
annual renewal fee on our note payable with them. Upon conversion of this
promissory note in June 2004, we issued 1,593,333 shares of our common stock.

In June 2004 we issued 1,923,077 shares of common stock to an institutional
investor upon exercise of 1,923,077 common stock purchase warrants resulting in
approximately $92,000 (net of a $3,846 warrant exchange fee paid to the
placement agent of the private placement offering in which these warrants were
originally issued).

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth information relating to equity compensation as of
June 30, 2004:
<TABLE>
<CAPTION>
                                                                                                 Number of Securities
                                                                                                Remaining Available for
                                  Number of Securities to           Weighted-average            Future Issuance Under
                                  Be Issued Upon Exercise           Exercise Price of          Equity Compensation Plan
                                  of Outstanding Options,          Outstanding Options,          (excluding securities
                                    Warrants and Rights            Warrants and Rights          reflected in column a)
                                 --------------------------      -------------------------     ------------------------
    <S>                                 <C>                                <C>                       <C>
    Equity Compensation Plans Approved by Security Holders:
    o   1998 Employee Stock
        Option Plan                        949,195                         $2.31                      1,050,805
    o   2002 Employee Stock
        Option Plan                             --                            --                      2,000,000
                                        ----------                         -----                     ----------
                                           949,195                         $2.31                      3,050,805

    Equity Compensation Plans Not Approved by Security Holders:
    o   2004 Stock
        Compensation Plan                9,138,427(2)                      $0.03                      8,098,030
    o   Other (1)                        3,906,612                         $1.68                             --
                                        ----------                         -----                     ----------
    Total                               13,994,234                         $0.65                     11,148,835
                                        ==========                         =====                     ==========
</TABLE>
----------
    (1)  Comprised of options granted and/or restricted stock and warrants
         issued to employees and non-employees, including directors,
         consultants, advisers, suppliers, vendors, customers and lenders for
         purposes including to provide continued incentives, as compensation for
         services and/or to satisfy outstanding indebtedness to them.

    (2)  Does not include 7,763,543 shares of common stock issued as stock
         awards under the 2004 Stock Compensation Plan.

                                       15
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW
We market a proprietary over-the-counter, total cholesterol monitoring device
for at-home use by both health-conscious and at-risk consumers ("our cholesterol
monitor"). Our cholesterol monitor enables an individual, through regular
at-home monitoring of their total cholesterol level, to continually assess their
susceptibility to developing cardiovascular disease, the single largest cause of
premature death and permanent disability among adult men and women in the United
States of America ("U.S.").

Our revenue is derived from the sale of our cholesterol monitors, as well as
sales of the dry-chemistry test strips utilized in performing a total
cholesterol test with our cholesterol monitors. Our current base of customers
primarily consists of national and regional drug store chains, and, to a lesser
extent, pharmacy-featuring grocery store chains, specialty catalog and
internet-based direct marketers and independent pharmacies.

During fiscal 2004 we were successful in the following areas:
    o    Raised a portion of the funds necessary to begin our test advertising
         campaign, primarily targeted radio advertising on the Rush Limbaugh and
         Dr. Laura radio talk shows. Over $1.3 million was expended on
         advertising campaigns during fiscal 2004,
    o    Continued to increase our major retail distribution channels to over
         20,000 retail locations,
    o    Began marketing and selling our products on a test basis on a major
         television shopping network. This sales venue has proven to be
         successful and we continue to pursue an opportunity to appear on this
         program more frequently during fiscal 2005,
    o    Implemented a point of sale marketing campaign at a significant retail
         customer whereby customers filling a prescription for cholesterol
         lowering drugs receive information regarding our products,
    o    Continued to monitor and remain active in discussions regarding FDA
         clearance for statin drugs to be sold over the counter, as well as, the
         government's status on medicare reimbursement of cholesterol testing,
    o    Continued to lower the cost of our cholesterol monitors in an effort to
         improve gross margins and reduce our general and administrative
         expenses, and
    o    Received approval from the FDA to incorporate our new Health Risk
         Analysis technology into our cholesterol monitors.

The above accomplishments during 2004 were offset by three significant events:
    o    In our continuing need for additional capital until our sales are able
         to support our operating expenses, we closed two separate private
         financings. Both financings were in the form of convertible debentures
         and a substantial portion of these debentures were converted into
         common stock during fiscal 2004. These events, as well as others,
         caused dilution of our common shares outstanding and a decline in the
         market price of our common stock. We continue to require additional
         financing as we continue to build awareness of our products and
         increase our distribution channels. We have been unable to obtain
         traditional financing with long-term investors that would not
         immediately further dilute the outstanding shares and price of our
         common stock.
    o    Because we were historically required to purchase our dry-chemistry
         test strips in larger quantities than currently required, and because
         our advertising campaign was not as successful as originally
         anticipated, we had a significantly larger quantity of strips that
         expired before being sold, or were returned by retailers due to their
         expiration. This resulted in the obsolescence of these expiring strips,
         as well as an increase in the returns allowance during fiscal 2004. As
         of June 30, 2004, there are no longer any strips with a short
         expiration remaining in inventory and we have negotiated with our
         vendor to order these test strips in smaller quantities.
    o    The initial order from a new major retail customer required us to
         provide approximately $201,000 of inventory at no cost to the retailer.
         The $201,000 was included as a component of our cost of goods sold with
         no offsetting revenue.

                                       16
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN
We have incurred substantial operating and net losses, as well as negative
operating cash flow, since our inception. As a result, we continued to have
significant working capital and stockholders' deficits at June 30, 2004. In
recognition of such, our independent registered public accountants included an
explanatory paragraph in their report on our consolidated financial statements
for the fiscal years ended June 30, 2004 and 2003, that expressed substantial
doubt regarding our ability to continue as a going concern.

In order to address our ability to continue as a going concern, we have
initiated or completed the following financing activities:
    o    On September 13, 2003, we completed a private placement offering of
         $3,350,000 in unsecured convertible debentures from which we received
         $3,067,000 in net cash proceeds;
    o    On February 19, 2004, we completed an additional private placement
         offering of $2,775,000 in unsecured convertible debentures from which
         we received $2,077,592 in net cash proceeds;
    o    On March 1, 2004, we received $100,000 in net proceeds from the
         issuance of an unsecured convertible debenture in the principal amount
         of $122,000;
    o    On April 28, 2004, our shareholders elected to increase our authorized
         common shares to 750 million shares for use in future financing
         transactions; and
    o    During the second half of fiscal 2004, we received approximately
         $327,000 in proceeds from the exercise of warrants issued in connection
         with prior financings.

With respect to our sales, gross margins and operating expenses, we have:
    o    Continued to reduce the cost of our current cholesterol monitor and
         expect to realize improved gross margins;
    o    Depleted the remaining inventory of our higher-cost, predecessor device
         during fiscal 2004;
    o    Continued negotiations with a major retailer, as well as smaller
         retailers, to sell our cholesterol monitor;
    o    Developed a continuing education program to be implemented during
         fiscal 2005 first quarter to broaden awareness and educate pharmacists
         on the benefits of our product;
    o    Developed a consumer point-of-sale awareness program for those patients
         purchasing certain cholesterol-lowering prescriptions, which is
         currently being tested;
    o    Continued to conduct the radio advertising marketing activities we
         began in October 2003, primarily targeted radio advertising;
    o    Continued to support and monitor the Medicare reimbursement
         considerations of the federal government for cholesterol testing;
    o    Continued to operate with a core staff of only 19 employees; and
    o    Continued to implement cost-cutting measures to reduce administrative,
         research and development costs.

We will continue to require additional financing to fund our longer-term
operating needs, including continuing marketing activities to build broad public
awareness of our cholesterol monitor. The amount of additional funding needed to
support us until that point in time at which we forecast that our business will
become self-sustaining from internally generated cash flow is highly dependent
upon our ability to continue conducting marketing activities and the success of
these campaigns on increasing awareness to consumers and pharmacists.

Should we be unsuccessful in any of the initiatives or matters discussed above,
our business, and, as a result, our consolidated financial position, results of
operations and cash flow will likely be materially adversely impacted, the
effects from which we may not recover. See the balance of "Management's
Discussion and Analysis," and particularly, "Risks and Uncertainties" for
further details.

                                       17
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated net sales for the fiscal year ended June 30, 2004 ("fiscal
2004") were $2,603,257, a decrease of $1,633,396, or 38.6%, as compared to
$4,236,653 for the fiscal year ended June 30, 2003 ("Fiscal 2003"). We primarily
attribute the decrease in our consolidated net sales for fiscal 2004 as compared
to fiscal 2003 to approximately $1,550,000 in revenue recognized on initial
orders from two prominent national drug store chains. The remaining decrease is
due to increased sales returns for test strips sold with a short-term expiration
date.

We realized a consolidated gross loss of $95,416 for fiscal 2004, a decrease of
$815,242, or 113.3%, as compared to a consolidated gross profit of $719,826 for
fiscal 2003. Our resulting consolidated gross margin was (3.7%) for fiscal 2004,
as compared to 17.0% for fiscal 2003. We primarily attribute the significant
decrease in our gross margins to increased sales returns allowance for sales of
test strips with a short expiration date, obsolete inventory for test strips
with a short-term expiration date, increased royalty expense related to our dry
chemistry test strips due to the current negotiations with our principal vendor
of these test strips as discussed in Item 1 - "Principal Vendors and Related
Assembly, Packaging and Distribution Operations", and an initial order for a
major new retailer during the fourth quarter of fiscal 2004. This initial order
required us to provide approximately $201,000 of inventory at no cost to the
major retailer. As a result, the $201,000 was included as a component of our
cost of goods sold in accordance with United States generally accepted
accounting principles. The increase in obsolete inventory is due to our decision
to suspend sales of test strips expiring in May and September 2004 due to the
short term in which our consumers would be able to utilize the test strips. This
resulted in the obsolescence of all remaining test strips with May and September
2004 expiration dates. To a lesser extent, we attribute the decrease in gross
margins to the adverse impacts of offering pricing discounts and incentives to
certain retailers to deplete inventory supplies of our first-generation consumer
monitor.

Our ability to realize consolidated gross profits sufficient to leverage our
ongoing operating expenses, and thus, achieve sustained operating profitability
at an acceptable level, remains highly dependent upon us achieving broad
awareness and acceptance of our monitors among both retailers and consumers. If
we are unsuccessful in our efforts to timely procure equity or debt financing
sufficient to continue to fund these marketing activities during fiscal 2005,
the likelihood of us achieving broad market awareness and acceptance of our
consumer monitors will be remote.

Our consolidated total operating expenses were $5,269,057 (inclusive of $769,757
in non-cash charges) for fiscal 2004, an increase of $267,754, or 5.4%, from the
$5,001,303 (inclusive of $624,542 in non-cash charges) incurred during fiscal
2003. As further detailed below, the increase in operating expenses for our
fiscal 2004 is due to increased marketing costs related to the radio marketing
campaign beginning in October 2003 and continuing throughout the remainder of
fiscal 2004.

Our consolidated sales and marketing expenses were $2,142,092 for fiscal 2004,
an increase of $1,138,549, or 113.5%, from the $1,003,543 incurred during fiscal
2003. The increase is primarily attributable to the launch of our radio
advertising campaign in October 2003, which continued throughout the fiscal 2004
fourth quarter. This substantial increase is offset by a decrease in salaries
expense due to staffing reductions, commissions due to decreased sales and
curtailed travel to, and participation in, trade shows.

Our consolidated general and administrative ("G&A") expenses were $2,672,043
(inclusive of $372,345 in non-cash charges) for fiscal 2004, a decrease of
$573,353, or 17.7%, from the $3,245,396 (inclusive of $182,110 in non-cash
charges) incurred during fiscal 2003. This decrease is primarily attributable to
a decrease of $562,412 in bad debt expense due to a recovery of $154,507 during
fiscal 2004 versus a $407,905 expense during fiscal 2003. The decrease in bad
debt expense is due to allowing for bad debt related to one significant retailer
at June 30, 2003, a portion of which was recovered in fiscal 2004. The remaining
decrease in G&A expenses is due to lower professional service costs due to the
previous completion, contraction or discontinuance of non-critical consulting
arrangements. Slightly offsetting the preceding were increased costs for Board
of Directors which had not previously been compensated, increased investor
relation costs incurred in connection with two additional shareholders' meetings
related to the increase in our authorized common shares during fiscal 2004, and
increased insurance costs.

                                       18
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Our product research and development expenses were $57,510 for fiscal 2004, a
decrease of $239,453, or 80.6%, from the $296,963 incurred during fiscal 2003.
This decrease primarily was attributable to reductions in salaries, benefits,
and product design costs as the development of our cholesterol monitor was
substantially completed by the end of our fiscal 2003 second quarter. We
currently expect that our product research and development needs and
expenditures will be nominal for the foreseeable future.

Our non-cash depreciation and amortization expenses were $309,656 for fiscal
2004, a decrease of $132,776, or 30.0%, from the $442,432 incurred during fiscal
2003. This decrease is primarily attributable to certain equipment that became
fully depreciated during fiscal 2003 and 2004. Our planned capital expenditures
are minimal and we believe that our fiscal 2005 depreciation and amortization
expense will materially approximate that which we incurred during fiscal 2004.
However, we are currently a party to a lawsuit in which we allege willful patent
infringement. Should the District Court not rule in our favor or we are unable
to successfully negotiate a settlement including royalties to be received, we
would be required to impair our patent, and as such, we would write down the
patent to its net realizable value through a charge to amortization expense. See
"Legal Contingencies" for further details.

We incurred an $87,756 loss on the disposal of tooling equipment associated with
our predecessor cholesterol monitor during the fiscal 2004 first quarter as
compared to a $12,969 loss on disposal of equipment incurred during fiscal 2003.

Our resulting loss from operations for fiscal 2004 was $5,364,473, an increase
of $1,082,996, or 25.3%, from the $4,281,477 incurred during fiscal 2003.

Our non-operating income and expenses primarily consist of amortization of
convertible debt discount, interest and financing expenses. Our net
non-operating expenses for fiscal 2004 were $9,043,084 (inclusive of $8,870,490
in non-cash charges), an increase of $5,217,616, or 136.4%, from net
non-operating expenses of $3,825,468 (inclusive of $2,863,664 in non-cash
charges) in fiscal 2003. The net increase realized during fiscal 2004 primarily
was attributable to increased amortization of convertible debt discount of
$4,095,072. The increased amortization of convertible debt discount is due to
the conversion of $5,480,624 of convertible debentures during fiscal 2004. The
remaining increase in non-operating income and expense is due to $1,728,889 of
expense related to a beneficial conversion feature recognized as a result of
issuing convertible debt at a discount from the stated conversion rate and an
increase of $466,002 in amortization of deferred financing costs related to two
significant private placements funded during fiscal 2004. These decreases were
offset by an increase in other income of $250,000 received for granting an
unrelated third party an option to purchase an unutilized technology patent. The
option expired unexercised during the first quarter of 2004 resulting in the
Company recognizing the funds received as non-operating income.

Primarily as a result of the foregoing, we incurred a net loss of $14,407,557
($0.11 per basic and diluted share) in fiscal 2004 as compared to a net loss of
$8,106,945 ($0.24 per basic and diluted share) in fiscal 2003.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

General
We have historically sustained our operations and funded our growth through an
ongoing combination of trade credit arrangements, short-term financings, and
debt and equity issuances. As our working capital requirements generally precede
the realization of sales and related accounts receivable, we routinely draw upon
our existing cash and cash equivalent balances and seek short and long-term
financing to fund our procurement of inventory.

As more extensively discussed in the preceding disclosures entitled "Substantial
Doubt Regarding Our Ability to Continue as a Going Concern," we have incurred
substantial operating and net losses, as well as negative operating cash flows,
since our inception. As a result, we had significant working capital and
stockholders' deficits at June 30, 2004 and 2003. In recognition of such, our
independent registered public accountants have included an explanatory paragraph
in their report on our accompanying consolidated financial statements for the
fiscal years ended June 30, 2004 and 2003, that expresses substantial doubt
regarding our ability to continue as a going concern. It must be noted that any
inability by us to timely procure the balance of the significant long-term

                                       19
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
financing we currently seek will likely have material adverse consequences on
our business, and, as a result, on our consolidated financial condition, results
of operations and cash flows.

Consolidated Cash and Cash Equivalents and Working Capital Deficiency
Our unrestricted cash and cash equivalents decreased by $779,930 to $590,196 at
June 30, 2004 as compared with $1,370,126 at June 30, 2003. Our working capital
deficiency remained comparable at $940,698 and $947,111 at June 30, 2004 and
2003, respectively.

Revolving Credit Facility and Recent Restructuring
Effective May 1, 2003, we restructured our then expiring revolving credit
facility agreement with a financial institution. Under the new agreement, our
then outstanding balance of $2,197,800 was bifurcated into a $2,000,000
twenty-four month term loan ("term loan") and a $197,800 advance loan ("advance
loan"). The term loan accrues interest at a fixed rate of 15% per annum and is
to be repaid through the financial institution's retention of the first $75,000
of each month's assigned accounts receivable collections. The advance loan
accrued interest at 15% and was repaid on March 31, 2004, through the financial
institution's additional retention of 25% of each month's assigned accounts
receivable collections over and beyond the initial $75,000 in collections
retained to service the term loan. On March 31, 2004, the financial institution
became entitled to retain ten percent of all subsequently collected accounts
receivable, subject to a limitation of ten percent of the term loan's then
outstanding balance, with the aggregate retentions to be returned to us upon our
full repayment of the term loan. As of June 30, 2004, $25,293 had been retained
and was being held in an escrow account. The term loan is secured and
collateralized by our cash and cash equivalents, accounts receivable, inventory,
property and equipment and intellectual property. Should any category of
collateral fall below specified percentages and margins, the financial
institution will be entitled to retain additional accounts receivable
collections sufficient to restore such percentages and margins. Any principal
and accrued interest balances remaining on the term loan will be due and payable
as a lump sum on April 1, 2005. The remaining term loan may be prepaid at any
time, without penalty, at our option. In consideration for extending the above
loans, we agreed to pay the financial institution an annual fee of $100,000,
beginning on May 1, 2003, and upon each annual anniversary thereafter on which
the term loan remains unpaid. The initial annual fee was satisfied through the
issuance of 1,000,000 shares of our common stock. During fiscal 2004, we issued
2,593,333 shares of common stock as partial payment of the annual fee for the
May 1, 2004 through April 30, 2005 period and a balance of approximately $24,500
remains payable at June 30, 2004.

Currently Outstanding Convertible Debt Obligations
From June 2001 through November 2001, we issued unsecured convertible
debentures, $3,840,000 of which remains outstanding with one debenture holder at
June 30, 2004. These debentures (i) accrue interest at the prime rate plus two
percent (6.25% at June 30, 2004), (ii) are currently convertible at the option
of the holders into common stock at a stated rate of $0.10 per share, and (iii)
become due and payable on various dates between July 1, 2006 and November 20,
2006. The holder may not convert its debentures to the extent that conversion
would result in the holder's beneficial ownership of 9.99% or more of our then
outstanding common shares. The holder of these debentures has a one-time right
to convert a portion of the debentures after the closing of any subsequent
private offering at less than $0.10 per common share (limited to 9.99%
ownership). The holder exercised this right during the third quarter of 2004 and
converted $180,000 of principal and $60,000 of accrued interest at $0.05
resulting in $240,000 of additional expense upon conversion related to the
beneficial conversion feature. We have the right to force conversion of the
debentures if the market price of our common stock exceeds $3.00 per share for
20 consecutive trading days.

September 2003 Issuances
On September 13, 2003, we issued $3,350,000 in unsecured convertible debentures
from which we received $3,067,000 in net cash proceeds. These debentures, which
have an aggregate principal face amount of $199,376 at June 30, 2004, (i) accrue
interest at a fixed rate of 8.0% per annum, which is payable at the our option
in either cash or authorized and unissued shares of our common stock. The
debentures were convertible at the option of the holders at a stated rate of
$0.13 per share and were due and payable on September 12, 2006. For every two
dollars of original debenture principal, the holder received a detachable stock
purchase warrant allowing for the purchase over the subsequent two-year period
of a share of our common stock at $0.2144 per share. Holders may not convert
their debentures or exercise their warrants to the extent that conversion or
exercise would result in the holders' beneficial ownership of 4.99% or more of
our then outstanding common shares. A registration statement filed with the

                                       20
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
United States Securities and Exchange Commission ("SEC") registering the resale
of the preceding debentures and warrants became effective on December 23, 2003.

On January 13, 2004, we entered into an exchange agreement with each holder of
our convertible debentures that were issued in September 2003. Under the
exchange agreement, each debenture holder agreed to exchange the principal
amount of its debenture for shares of our common stock, at the rate of $0.09 of
debenture principal per share of common stock. Holders could not convert their
debentures to the extent that conversion would result in the holders' beneficial
ownership of 4.99% or more of our then outstanding common shares. Accrued but
unpaid interest of $149,659 related to these debentures was paid at the time of
the exchange by the issuance of additional shares of common stock at the rate of
$0.09 per share. Accordingly, in January 2004 we issued 32,427,204 shares of
common stock upon exchange of debenture principal in the amount of $2,975,624
and the payment of accrued but unpaid interest of $149,659. Additionally, we
issued 2,227,807 shares of common stock to adjust the conversion rate applied to
$175,000 of principal previously converted by a debenture holder to the $0.09
rate stated in the exchange agreement. As a result of the above, in January 2004
we recognized approximately $1,489,000 of additional financing expense related
to the beneficial conversion features of the exchange and amortized to expense
approximately $2,668,000 of previously existing debt discount related to the
convertibles debentures issued in September 2003.

The remaining principal balance from the September issuance of $199,376 at June
30, 2004 was subsequently converted during the first quarter of fiscal 2005,
resulting in no further convertible debenture principal or interest related to
the September 2003 issuance outstanding as of this date.

February 2004 Issuances
On February 19, 2004, we completed a private placement offering of $2,775,000 in
unsecured convertible debentures from which we received $2,077,592 in net cash
proceeds. After conversions during fiscal 2004, these debentures have an
aggregate principal face amount of $1,997,000 at June 30, 2004, become due and
payable on February 19, 2006. The purchase price for the convertible debentures
gives effect to an original issue discount of approximately $500,000, the amount
of which was withheld from the proceeds at the time of the closing of the
financing and are being amortized to deferred financing costs over the term of
the debentures. The debentures are convertible at a conversion price of $0.05
per share (66% of the average of the five consecutive closing bid prices
immediately prior to the closing date of the offering). The conversion price is
subject to adjustment upon the occurrence of certain events including stock
dividends, subdivisions, combinations and reclassifications of our common stock.
In connection with this transaction participating warrant holders agreed to
exercise outstanding warrants held by them to the extent such exercise would not
result in any particants' beneficial ownership of 4.9% or more of our then
outstanding common shares.

Participants in the February 19, 2004 offering received detachable stock
purchase warrants allowing for the purchase of a number of common shares equal
to 30% of the number of shares which could be obtained upon conversion of the
debenture principal outstanding on February 19, 2004. The warrants can be
exercised over a nineteen-month period and have an exercise price of $0.065 per
share of our common stock, subject to adjustment upon the occurrence of events
substantially identical to those provided for in the debentures. We have the
right to call the warrants in the event that the average closing price of our
common stock exceeds 200% of the exercise price for a consecutive 20-day trading
period. Holders may not convert debentures or exercise warrants to the extent
that conversion or exercise would result in the holders' beneficial ownership of
4.9% or more of our then outstanding common shares.

On March 22, 2004, we filed a registration statement with the United States
Securities and Exchange Commission ("SEC") registering the resale of the common
shares underlying the debentures and warrants issued on February 19, 2004, which
became effective April 5, 2004. We also agreed to seek shareholder approval to
increase the number of authorized common shares to a minimum of 500 million
shares before April 30, 2004. Shareholder approval to increase the number of
authorized common shares to 750 million was obtained on April 28, 2004.

                                       21
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Investors in the February 19, 2004, financing were granted the option to
purchase a pro-rata portion of up to an additional $1,220,000 in convertible
debentures and warrants with terms and conditions substantially identical to
those applicable to the February 19, 2004, transaction. This option expires on
October 28, 2004 and as of the date of this filing had not yet been exercised.

The agreements entered into in connection with the February 19, 2004 transaction
requires that we obtain the unanimous approval of the debenture holders prior to
the occurrence of certain events including stock dividends, subdivisions,
combinations and reclassifications of our common stock until less than 20% of
the principal remains outstanding on the debentures. The agreement further
stipulates that no debenture may be prepaid without the consent of the holder
and that each debenture holder has a right of first refusal to participate in
any new financing transaction consented to through June 10, 2005.

March 2004 Issuance
In March 2004, we issued an unsecured convertible debenture in the amount of
$122,000 from which we received $100,000 in net proceeds after an original issue
discount of $22,000. We also issued 732,000 detachable stock purchase warrants
in connection with this transaction. The convertible debenture and common stock
purchase warrants have identical terms and conditions to those issued on
February 19, 2004. The principal balance outstanding for this debenture was
$122,000 at June 30, 2004.

At the respective dates of issuance, we were required under accounting
principles generally accepted in the United States of America to ascertain for
each of the above debenture issuances, the fair value of the detachable stock
warrants and resulting beneficial conversion feature. For each debenture
issuance, the aggregate fair value of the detachable warrants and beneficial
conversion features was determined to be equal to the aggregate principal face
amount of the debt proceeds received, and as such, these amounts were recorded
as debt discounts by increasing additional paid-in capital. These debt discounts
are being amortized over the respective lives of the underlying debentures. The
aggregate unamortized debt discount amounted to $3,332,415 and $2,883,918 at
June 30, 2004 and 2003, respectively.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.

Contractual  Obligations
The following table sets forth our contractual obligations as of June 30, 2004:
<TABLE>
<CAPTION>
         Contractual Obligations                                 Payments Due by Period
------------------------------------------     ----------------------------------------------------------
                                                Less than                           3-5       More than
                                   Total         1 year          1-3 Years         Years       5 Years
                                ----------     ----------        ----------        ----     -------------
<S>                             <C>            <C>               <C>               <C>      <C>
Long Term Debt (1)              $7,205,407     $1,169,031        $6,036,376(2)     $ --     $          --
Capital Lease Obligations           36,784         30,612             6,172          --                --
Operating Lease Obligations         72,746         69,026             3,348         372                --
Purchase Obligations               864,248        864,248(3)             --          --                --
                                ----------     ----------        ----------        ----     -------------
Total                           $8,179,185     $2,132,917        $6,045,896        $372     $          --
                                ==========     ==========        ==========        ====     =============
</TABLE>
----------
(1)  Amounts do not include interest to be paid.
(2)  Consists of convertible debentures that are convertible into shares of
     common stock at the option of the debenture holder at conversion rates
     ranging from $0.05 to $0.10.
(3)  Consists of purchase commitments made under a contract for our targeted
     radio advertising campaign. Although we are contractually obligated to
     continue the radio advertising campaign through January 7, 2005, due to
     cash flow constraints we ceased placing media ads in mid-September 2004.
     Unless the advertising agent is able to find substitute sponsors for our
     committed advertising spot times, we may be required to pay for the
     remaining contractual obligation of $864,248.

                                       22
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Consolidated Cash Flows
Our operating activities utilized $5,362,412 in cash and cash equivalents during
fiscal 2004, an increase of $3,152,256, or 142.6%, from the $2,210,156 in cash
and cash equivalents consumed during fiscal 2003. On a comparative fiscal
period-to-period basis, our substantially higher utilization primarily reflects
the $6,300,612 increase in our net loss as well as the utilization of cash to
decrease accounts payable by $1,232,831 during fiscal 2004 compared to a
positive cash flow from the increase in accounts payable of $802,345 during
fiscal 2003. The substantial decrease in accounts payable is due to utilization
of funds received from financing activities to pay trade creditors. To a lesser
extent, the increased utilization is due to decreased deferred income and
increased prepaid expenses resulting from prepayments made on an advertising
contract and inventory. Partially offsetting these negative cash flow effects
were the positive cash flow effects of a larger portion of our net loss being
comprised of non-cash items in fiscal 2004 as compared to fiscal 2003. The
increased utilization is also offset by the decrease in inventory balances and
increase in accrued liabilities at June 30, 2004.

Our investing activities utilized $6,149 in cash and cash equivalents during
fiscal 2004, a decrease of $10,258, or 62.5%, from the $16,407 in cash and cash
equivalents utilized during fiscal 2003. Our decreased utilization is
attributable to lower capital expenditures as a result of continued cost-cutting
measures implemented to decrease cash outflows.

Our financing activities provided $4,588,631 in cash and cash equivalents during
fiscal 2004, an increase of $1,581,796, or 52.6%, from the $3,006,835 in cash
and cash equivalents provided by financing activities during fiscal 2003. Our
fiscal 2004 increase reflects the receipt of $5,244,592 net cash proceeds
received from the issuance of convertible debentures and $326,923 proceeds
received from our issuance of stock upon exercise of warrants. These cash
inflows were offset by increased principal payments on our outstanding capital
lease obligations and notes payable. In contrast, our fiscal 2003 reflected
principal payments on outstanding convertible debentures and other debt, being
offset by the cash inflow from sales of common stock and the redemption of a
previously restricted certificate of deposit.

As a result of the foregoing, our unrestricted cash and cash equivalents
decreased by $779,930 to $590,196 at June 30, 2004 as compared with $1,370,126
at June 30, 2003.

Planned Capital Expenditures
We have no significant planned capital expenditures for fiscal 2005.

OTHER MATTERS

Seasonal and Inflationary Influences
We have historically experienced certain seasonal sales influences consistent
with our initial expectations. In particular, we had expected, absent materially
adverse economic or counter-acting events, that our fiscal second quarter ending
December 31 would slightly benefit from increased orders by retailers for the
holiday shopping season. This trend was not reflected in the current fiscal year
and we remain uncertain as to whether this seasonality will continue in the
future. To date, we have not been materially impacted by inflationary
influences.

Quantitative and Qualitative Disclosures About Market Risk
We currently are exposed to financial market risks from changes in short-term
interest rates as certain of our interest-bearing outstanding convertible
debentures, as discussed above, have an interest rate that fluctuates with the
prime rate. Based on the aggregate outstanding balance of these convertible
debentures at June 30, 2004, we believe that the prime rate would have to
significantly increase, in excess of a few hundred basis points, for the

                                       23
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

OTHER MATTERS (CONTINUED)
resulting adverse impact on our interest expense to be material to our expected
results of operations for fiscal 2005, and possibly beyond. However, should we
be successful in procuring the significant additional financing we currently
seek and if such financing were to be substantially in the form of variable rate
debt, then our exposure to these market risks would increase, possibly
significantly.

We currently are not materially exposed to currency market risks and we have not
used, nor do we contemplate using, any derivative financial instruments.

Critical Accounting Policies
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make certain estimates and assumptions that affect the reported
amounts and timing of revenue and expenses, the reported amounts and
classification of assets and liabilities, and disclosure of contingent assets
and liabilities. Our actual results have differed, and will likely continue to
differ, to some extent from our initial estimates and assumptions. We currently
believe that the following significant accounting policies entail making
particularly difficult, subjective or complex judgments of inherently uncertain
matters that, given any reasonably possible variance therein, would make such
policies particularly critical to a materially accurate portrayal of our
historical or reasonably foreseeable financial condition or results of
operations:

    o    Revenue Recognition. We generate revenue primarily from sales of our
         cholesterol monitors and dry-chemistry test strips utilized in our
         cholesterol monitors. We recognize a sale, including related shipping
         and handling income, and the cost of the sale, upon product shipment
         provided that all material risks and rewards of ownership are
         concurrently transferred from us to our customer, collection of the
         related receivable by us is reasonably assured, and we are able to
         reliably estimate an appropriate allowance for sales returns based on
         our relevent historical product experience and future expectations. In
         certain instances, shipments made to a retail customer may not transfer
         risk of ownership at the time of shipment, in which case, the revenue
         is not recognized until the time risks of ownership transfer, generally
         when the product is sold by the retailer to a consumer.

    o    Sales Returns Allowance. We record an allowance for sales returns and
         for warranty repairs at the time revenue is recognized. Our estimates
         of an appropriate allowance for sales returns is based upon historical
         returns as a percentage of sales, as well as future expectations on
         returns of test strips based upon the length of time from their
         expiration date at the time of sale. Management reviews the adequacy of
         the allowance on a quarterly basis, however the nature of these
         estimates are inherently subjective causing actual results to vary from
         our estimated outcome, thereby requiring us to make future adjustments
         to our net sales and results of operations.

    o    Allowance for Doubtful Accounts. We record an allowance for doubtful
         accounts based on specifically identified amounts that we believe to be
         uncollectible and those accounts that are past due beyond a certain
         date. Management reviews the adequacy of the allowance on a quarterly
         basis by reviewing the accounts receivable aging and considering the
         historical default rates of customers with past due receivables. Our
         estimates of an appropriate allowance for doubtful accounts are
         inherently subjective and actual results could vary from our estimated
         outcome, thereby requiring us to make future adjustments to our
         accounts receivable and results of operations.

    o    Inventory Obsolescence Allowance. Our inventories, which primarily
         consist of component parts and assembled cholesterol monitors, are
         stated at the lower of first-in, first-out cost or market. Obsolete
         inventory has historically consisted of component parts no longer
         utilized in the current model of our cholesterol monitor, as well as,
         expired dry-chemistry test strips or excess test strips with short-term
         expiration dates that will likely not be sold prior to expiration.
         Management considers the above factors in our quarterly review of the
         inventory obsolescence allowance. Our estimates of an appropriate
         inventory obsolescence allowance is inherently subjective and actual
         results could vary from our estimated outcome, thereby requiring us to
         make future adjustments to our inventories and results of operations.

                                       24
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

OTHER MATTERS (CONTINUED)

    o    Impairment of Long-Lived Assets. Our long-lived assets consist
         primarily of various patents for technology utilized in our cholesterol
         monitors, as well as, currently unutilized technology for the
         measurement of cholesterol in its component parts. On a quarterly
         basis, we evaluate the value of our patents for impairment by comparing
         our estimates of related future cash flows, on an undiscounted basis,
         to its net book value. Factors considered by management in its review
         of the value of patents include the status of current litigation
         surrounding our most significant patent, likelihood of development or
         sale of the patent (if unutilized), and likely cash flows from
         royalties to be received from others for use of the patented
         technology. If impairment is indicated, we reduce the net book value to
         an amount equal to the estimated future cash flows, on an appropriately
         discounted basis. Our estimates of an asset's related future cash flows
         are inherently subjective and actual results could vary from our
         estimated outcome, including expected outcomes of the current
         litigation surrounding our most significant patent. Should the courts
         not rule in our favor, we would most likely be required to reduce the
         valuation of this patent which could have a material impact on our
         consolidated financial statements.

Legal Contingencies
We, including our subsidiaries, are periodically involved in incidental
litigation and administrative proceedings primarily arising in the normal course
of our business. In our opinion, our gross liability, if any, and without any
consideration given to the availability of indemnification or insurance
coverage, under any pending or existing incidental litigation or administrative
proceedings would not materially affect our financial position, results of
operations or cash flows.

Our wholly owned subsidiary, Lifestream Diagnostics, Inc., is the plaintiff in
patent infringement litigation, Civil Action No. CV00-300-N-MHW, against Polymer
Technology Systems, Inc., et al, currently pending in the United States District
Court for the District of Idaho. The patent-in-suit is Thakore, U.S. Patent No.
3,135,716 (see "Business - Intellectual Property Rights" for further details).
We allege willful patent infringement and seek Polymer's immediate
discontinuance of the HDL test strip technology currently utilized in their
diagnostic device to which we claim ownership. The defendants have brought a
number of counterclaims, including antitrust, unfair competition, tortious
interference with business relations and patent misuse, and have asserted
unspecified general damages. The Court conducted a "claim interpretation"
hearing (also called a "Markman" hearing) January 29-30, 2003, and issued a
Memorandum Decision on May 28, 2003, ruling against our assertion of patent
infringement. Based on the Court's claim interpretation decision, the parties
jointly requested entry of a judgment of non-infringement, a stay of the
counterclaims, and a certification that the claim interpretation decision is
ripe for appeal. The Court entered this order on August 21, 2003. We timely
filed a Notice of Appeal to the Court of Appeals for the Federal Circuit and
were assigned an appeal number of 03-1630. All briefs were timely filed,
argument was heard on May 7, 2004, and the appeal was submitted for decision on
that date In August 2004, the Court of Appeals reversed the District Court's
ruling and remanded the matter back to the District Court for a new hearing.

Following the remand, the parties returned to settlement negotiations. Pursuant
to these negotiations, the parties have now entered into a Letter of Intent
requiring the parties to negotiate in good faith an agreement that would, among
other things, resolve the litigation through a license under U.S. Patent No.
3,135,716. A final agreement has not yet been reached, and the litigation
remains pending before the Idaho District Court.

Although we believe that our claims are well founded in law and fact, and
believe that the counterclaims and defenses alleged by the defendants are
baseless, the outcome of this litigation cannot be predicted with certainty.
Should the District Court not rule in our favor, we may be unsuccessful in
collecting future royalties from parties utilizing this technology and as a
result, may reduce the net realizable value requiring a write down of the patent
on our consolidated financial statements.

RISKS AND UNCERTAINTIES
This Annual Report on Form 10-KSB contains statements that are forward-looking.
These statements are based on our current expectations and assumptions that are
subject to risks and uncertainties. Our actual results could differ materially
because of risks and uncertainties such as those listed below and elsewhere in
this report, which, among others, should be considered in evaluating our
business prospects and financial outlook.

                                       25
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)

OUR WEAK FINANCIAL CONDITION HAS RAISED, AND WILL LIKELY CONTINUE TO RAISE,
SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

We have incurred substantial operating and net losses, as well as negative
operating cash flows, since our inception. Our significant working capital and
stockholders' deficits as of June 30, 2004 and 2003, among other factors,
resulted in our independent certified registered accountants modifying their
audit report on our consolidated financial statements for the fiscal years ended
June 30, 2004 and 2003 to express substantial doubt regarding our ability to
continue as a going concern. Although we have been successful in restructuring
certain debt obligations as they have become due and in raising additional
investment capital to fund certain immediate and near-term operating needs, we
remain in need of substantial additional investment capital to fund our
longer-term operating needs, including servicing of our remaining debt
obligations and continued conducting of marketing activities we believe
necessary to achieve meaningful sales growth.

IF WE CANNOT TIMELY SECURE NECESSARY FINANCING OR GENERATE SUBSTANTIAL REVENUE
GROWTH, WE WILL LIKELY BE UNABLE TO FULFILL OUR OUTSTANDING OBLIGATIONS,
INCLUDING DEBT SERVICE AND PURCHASE COMMITMENTS.

We have incurred substantial debt obligations and have entered into operating
commitments, including a marketing contract in which we are contractually
obligated to purchase a minimum number of radio advertising spots. Although we
have been successful in restructuring certain debt obligations as they have
become due and in raising additional investment capital to fund certain
immediate and near-term operating needs, if we are unable to raise additional
capital or generate substantial revenue growth, we will be unable to service
our remaining debt obligations, marketing purchase obligations, and other
commitments.

IF WE CANNOT TIMELY SECURE NECESSARY FINANCING, WE WILL BE UNABLE TO CONTINUE TO
GROW OUR SALES, IN WHICH EVENT WE WILL LIKELY BE UNABLE TO SUPPORT OUR
OPERATIONS.

We have realized limited sales revenues to date that we primarily attribute to
our continuing inability to sustain funding the marketing activities we believe
necessary to develop broad market awareness and acceptance of our total
cholesterol monitors. Our inability to leverage our operating costs with sales
has resulted in continuing significant operating and net losses, as well as
negative operating cash flows. For the years ended June 30, 2004 and 2003, we
incurred losses of $14,407,557 and $8,106,945, respectively. Our continuing
losses adversely affect our ability to secure additional funding.

We continue to actively seek substantial investment capital to enable us to
fully execute the balance of our business plan, that primarily being the
conducting of those marketing activities we believe necessary to achieve
meaningful sales growth. Our ability to effectively promote our monitors,
support and sustain our existing retail relationships, cultivate, support and
sustain additional retail relationships, and thereby realize meaningful sales
growth, remains dependent upon our timely receipt of substantial additional
investment capital. Absent meaningful sales growth, our ability to achieve net
profitability and positive operating cash flow remains highly unlikely.

OUR CONTINUED SALE OF EQUITY SECURITIES WILL DILUTE EXISTING STOCKHOLDERS AND
MAY ADVERSELY AFFECT THE MARKET FOR OUR SHARES.

Our ongoing need for additional capital to sustain marketing activities and
supplement the financing of our operations has required the issuance of a
substantial amount of our common stock or debt convertible into our common
stock. During fiscal 2004 and 2003, we issued a total of 88,447,096 and
67,926,593 common shares, respectively, which increased the number of common
shares outstanding from 24,967,997 at July 1, 2002 to 181,341,686 at June 30,
2004. Also during fiscal 2004, the number of authorized shares of our common
stock was increased from 250 million to 750 million.

We will require additional financing in the future to fund our business plans,
including additional marketing efforts and inventory. To date, our success in
attracting funding has required that we issue our common stock at a discount to
market. We anticipate that future funding may require us to continue to issue
shares at a discount, as a result of which, additional financing will cause
further dilution to existing outstanding stockholders. Moreover, the increase in
the number of shares available in the public marketplace may reduce the market
price for our shares and, consequently, the price investors may receive at the
time of sale.

                                       26
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)

THE PRICE VOLATILITY FOR OUR COMMON STOCK AND THE LACK OF AN ACTIVE MARKET MAY
ADVERSELY AFFECT THE ABILITY OF STOCKHOLDERS TO BUY AND SELL OUR SHARES.

Our common stock is currently listed and traded on the Over-the-Counter Bulletin
Board. Our common stock has experienced, and continues to experience,
significant volatility in its market price. Additionally, our common stock has
experienced, and continues to experience, limited trading volume on any given
market day. These factors may adversely affect both the liquidity and market
price of our stock.

WE REMAIN DEPENDENT UPON KEY MANAGEMENT PERSONNEL AND IF WE ARE UNABLE TO RETAIN
THEM, OUR OPERATIONS MAY SUFFER.

We believe that our future success currently remains dependent upon the
knowledge, skills, services and vision of Christopher Maus, our Chairman of the
Board of Directors, Chief Executive Officer and President, and to a lesser
extent, Edward Siemens, our Chief Operating Officer. Our dependence upon these
individuals has increased over our most recent fiscal year as a result of
significant staff reductions we have made to reduce our operating costs. The
significant staff reductions have resulted in substantial additional demands on
our existing officers and staff. Despite our increased dependency on these
individuals, they each agreed, effective April 2003, to prospective one-third
reductions in their contractual salaries until we realized an improvement in our
financial condition. Effective June 2, 2003, we restored one half of the pay
cuts prospectively. In January and June 2004, the Board of Directors approved
the issuance of common stock to these officers in lieu of cash payment for
compensation lost as a result of these pay cuts. Our ability to retain these
individuals remains uncertain and any loss or disablement of these individuals
could have a material adverse effect on our business, and as a result, on our
results of operations, liquidity and cash flows. There can also be no assurance
that the proceeds we would receive under a $5,000,000 key man life insurance
policy we maintain on Mr. Maus would sufficiently compensate us in the event of
his unfortunate death. Our retention and possible recruitment of experienced and
talented management will also be critical to our future success.

WE REMAIN DEPENDENT UPON ROCHE DIAGNOSTICS GMBH TO SUPPLY US WITH DRY-CHEMISTRY
TEST STRIPS AND IF WE FAIL TO MEET MINIMUM PURCHASE REQUIREMENTS, ROCHE MAY
DISCONTINUE ITS SUPPLY RELATIONSHIP WITH US.

We are party to a licensing and manufacturing agreement with Roche Diagnostics
GmbH (Roche) of Mannheim, Germany. Our agreement with Roche currently grants us
the exclusive right to market and distribute its proprietary test strips in the
U.S. We are required to purchase our supply of dry-chemistry test strips
utilized in our cholesterol monitors exclusively from Roche. The initial term of
the agreement expires on December 31, 2004 and, absent default by either party,
the agreement automatically renews for additional one-year terms unless either
party gives 12 months written notice of termination. Neither party has given
written notice of termination as of the date of the Report. Should we fail to
meet our contractually mandated minimum purchase requirements, Roche may elect
to discontinue its relationship with us or to impose price increases. As we did
not meet the calendar 2002 minimum sales threshold set forth in the agreement,
Roche began prospectively assessing us a 10% price surcharge in exchange for
agreeing to maintain our U.S. exclusivity. This surcharge was based on our
revised sales forecasts for the duration of the agreement. Should we fail to
meet these sales forecasts, Roche may impose a more significant price surcharge
on us as a condition to further maintaining our U.S. exclusivity. We believe
that a suitable technological or economical alternative to Roche's dry chemistry
test strips is available in the marketplace, however any disruption in our
relationship with Roche could cause us to lose our U.S. exclusivity, which could
have a material adverse impact on our business, and as a result, on our results
of operations, liquidity and cash flows.

WE REMAIN DEPENDENT UPON ROCHE DIAGNOSTICS GMBH TO SUPPLY US WITH DRY-CHEMISTRY
TEST STRIPS AND IF WE FAIL TO SUCCESSFULLY RESOLVE AN ONGOING DISPUTE OVER
ROYALTY PAYMENTS RELATING TO PROPRIETARY OPTICS TECHNOLOGY, ROCHE MAY
DISCONTINUE ITS SUPPLY RELATIONSHIP WITH US.

Our agreement with Roche licenses us its proprietary optics technology, which we
utilized in our predecessor cholesterol monitor in exchange for an agreed-upon
royalty per device sold. However, we recognized no royalty obligation on sales
of our current consumer device, which we began selling in October 2002, as we
viewed the re-engineered optics technology used in this device as being
proprietary to us, and not Roche. In May 2003, Roche asserted in a letter to us


                                       27
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)
that the subject optics technology was, in their opinion, still subject to
royalties under our agreement. Given our dependency on Roche for its test strips
and in order to avoid jeopardizing such relationship, we responded in July 2003
with a letter proposing a substantially lower royalty on each device sold.
Negotiations are currently ongoing and we have recorded a liability in the
amount we believe is necessary for full and final settlement of this matter
based on the latest negotiations. We believe that any incremental royalty
obligation resulting from these negotiations would not be material to our
expected future consolidated financial statements, however if we are unable to
successfully resolve this dispute with Roche, Roche may elect not to renew our
license and supply agreement and we could lose our U.S. exclusivity, which could
have a material adverse impact on our business, and as a result, on our results
of operations, liquidity and cash flows.

BECAUSE WE ARE DEPENDENT UPON A FEW MAJOR CONSUMER RETAIL CHAINS FOR
SUBSTANTIALLY ALL OF OUR CURRENT SALES, THE LOSS OF ANY ONE OF THEM WOULD REDUCE
OUR REVENUES, LIQUIDITY AND PROFITABILITY.

Significant portions of our sales to date have been, and continue to be, made
through major consumer retail chains. We do not engage in long-term supply
contracts with these major customers and it is therefore possible that any of
our major customers could cease purchasing our products at any time. Any
disruption in our relationships with one or more of these consumer retail
chains, or any significant variance in the magnitude or the timing of orders
from any one of these chains, may have a material adverse impact on our
business, and as a result, on our results of operations, liquidity and cash
flows.

OUR CONTINUED RELIANCE ON LIMITED SERVICE PROVIDERS FOR THE OUTSOURCED ASSEMBLY
OF OUR PRODUCTS LEAVES US VULNERABLE TO LATE PRODUCT DELIVERY.

We outsource the assembly of our total cholesterol monitors to Servatron Inc.
and/or Opto Circuits (India) Limited. We engage these companies, on an as-needed
basis, under free-standing purchase orders to assemble our total cholesterol
monitors. Any disruption in our relationship with such assemblers would likely
have a material adverse impact on our business, and as a result, on our results
of operations, liquidity and cash flows.

OUR RELATIVE INEXPERIENCE WITH ADVERTISING MAY DELAY THE GROWTH OF MARKET
AWARENESS AND PENETRATION FOR OUR CURRENT PRODUCT.

As more extensively discussed elsewhere in this 10-KSB, we need substantial
additional advertising to promote our cholesterol monitor and yet, we, as a
company, have had limited experience with advertising due to our limited
financial resources. There can be no assurance that our future advertising
initiatives will be successful in building the necessary broad market awareness
for our cholesterol monitor.

IF WE ARE UNSUCCESSFUL IN PROTECTING OUR PATENTS, LICENSES, TRADEMARKS AND
TECHNOLOGIES, OR IF WE INFRINGE UPON THE RIGHTS OF OTHERS, WE COULD INCREASE
COMPETITION AND EXPOSE OURSELVES TO CLAIMS FOR DAMAGES.

Our future success remains dependent upon our ability to obtain, maintain and
enforce our materially important patents, licenses and trademarks, particularly
those critical to our product image and the various technologies employed in our
products. Although we remain actively engaged in protecting all such material
assets, both in the U.S. and abroad, there can be no assurance that these assets
will not be challenged by third parties, invalidated or designed around, or that
they will provide protection that has ongoing commercial significance. It must
also be noted that any related litigation will likely be costly and
time-consuming and there can be no assurance of a favorable outcome. There can
also be no assurance that our actions will not inadvertently infringe upon the
proprietary rights of others, thereby subjecting us to remedial or punitive
sanctions, or that we would be subsequently successful in procuring licensing
rights on commercially reasonable terms. Any failure on our part to successfully
protect these material assets, to avoid inadvertently infringing upon the
proprietary rights of others, or to successfully obtain sought after patents,
licenses or trademarks in the future, may have a material adverse impact on our
business, and as a result, on our results of operations, liquidity and cash
flows.

                                       28
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)

IN THE EVENT OUR APPEAL OF AN ADVERSE PATENT DECISION IS NOT REVERSED, WE MAY
LOSE PATENT PROTECTION AND POTENTIAL FUTURE ROYALTIES RELATING TO AN HDL TEST
STRIP TECHNOLOGY TO WHICH WE CLAIM OWNERSHIP.

We are the plaintiff in patent infringement suit in which we allege that a third
party is infringing upon technology that is the subject of a patent owned by our
subsidiary. The patent in question is not used in our cholesterol monitor but is
valuable technology to which our subsidiary claims ownership. On May 28, 2003,
the Court issued a Memorandum Decision in which our claim of patent infringement
was denied. Based on the Court's claim interpretation decision, the parties
jointly requested entry of a judgment of non-infringement, a stay of the
counterclaims, and a certification that the claim interpretation decision is
ripe for appeal. The Court entered this order on August 21, 2003. We timely
filed a Notice of Appeal to the Court of Appeals for the Federal Circuit and
were assigned an appeal number of 03-1630. All briefs were timely filed,
argument was heard on May 7, 2004, and the appeal was submitted for decision on
that date. In August 2004, the Court of Appeals reversed the District Court's
ruling and remanded the matter back to the District Court for a new hearing.

Following the remand, the parties returned to settlement negotiations. Pursuant
to these negotiations, the parties have now entered into a Letter of Intent
requiring the parties to negotiate in good faith an agreement that would, among
other things, resolve the litigation through a license under U.S. Patent No.
3,135,716. A final agreement has not yet been reached, and the litigation
remains pending before the Idaho District Court.

Although we believe that our claims are well founded in law and fact, and
believe that the counterclaims and defenses alleged by the defendants are
baseless, the outcome of this litigation cannot be predicted with certainty.
Should the District Court not rule in our favor, we may be unsuccessful in
collecting future royalties from parties utilizing this technology and as a
result, may reduce the net realizable value requiring a write down of the patent
on our consolidated financial statements.

WE EXPERIENCE COMPETITION FROM MANY PARTICIPANTS IN THE MEDICAL EQUIPMENT AND
HOME TESTING MARKET AND OUR ABILITY TO COMPETE IN THE MARKETPLACE REMAINS
UNCERTAIN.

We compete with firms that market inexpensive equivocal, non-instrument based,
disposable cholesterol screening tests for the personal-use market as well as
with firms that market more expensive quantitative, instrument-based, reusable
diagnostic measuring devices, such as our cholesterol monitors, for the personal
and professional-use markets. Equivocal, non-instrument-based, disposable
cholesterol screening tests primarily are designed and engineered to indicate to
a consumer user whether a high cholesterol situation exists, and if so, to
provide a crude indication of its likely magnitude. If an elevated cholesterol
level is indicated, the consumer is advised to timely consult a medical doctor
who, in turn, will seek a precise measurement of the individual's total
cholesterol from a quantitative, instrument-based, diagnostic device.
Quantitative, instrument-based, reusable diagnostic measuring devices primarily
are designed and engineered to provide clinically accurate measurements of one
or more components within blood for making risk assessments related to one or
more chronic diseases. These devices vary widely as to their scope,
capabilities, ease-of-use and price. As our total cholesterol monitors are
intended by us to be directly used by individuals and primary-care physicians,
they may also be viewed as indirectly competing with the traditional
patronization of medical laboratories for blood analysis services. Many of our
existing and potential competitors have substantially greater financial,
technical and other resources and larger, more established marketing, sales,
distribution and service organizations than we do. Since the scope,
capabilities, ease-of-use and price of screening tests and diagnostic devices
vary widely, the perceptions and preferences of consumers and medical
professionals may also vary widely. As such, there can be no assurance that our
cholesterol monitors, as currently configured, packaged and marketed, will be
able to successfully compete in the longer term with existing or future
competing products or services.

                                       29
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)

GOVERNMENT REGULATION MAY DELAY OR PREVENT US FROM SUCCESSFULLY MARKETING OUR
PRODUCTS.

We have previously obtained all federal and state regulatory clearances and
approvals we believe applicable to our current line of total cholesterol
monitors. However, many, if not all, of these clearances and approvals remain
subject to continual review, particularly by the United States Food and Drug
Administration. The subsequent claiming of jurisdiction by a federal or state
regulatory agency to which we have not previously obtained regulatory clearances
or approvals, or the subsequent discovery of an actual or perceived problem by
us or a regulatory authority, could give rise to certain marketing restrictions
or to a temporary or permanent withdrawal of one or more of our current products
from the market. We also remain subject to regulatory oversight, particularly
from the FDA, with respect to various other matters, including our manufacturing
practices, record-keeping and reporting. For instance, the FDA requires the
integration of their quality system into any facility it registers as a "medical
device facility". This quality system requirement encompasses product
development and manufacturing, customer service, incident reporting and labeling
control. Our assembly facilities, as well as the assembly facilities of our
outsourced assemblers, are registered with the FDA. As such, these assembly
facilities, and the production processes employed within them, remain subject to
the FDA's quality system requirement and ongoing periodic audits by the FDA.
While we believe that all of our current products, as well as all of our related
marketing and assembly activities, including those of our assemblers, continue
to comply in all material respects with all applicable federal and state
regulations, such compliance is heavily subject to one's interpretation of the
applicable regulations, which often can be difficult or ambiguous. Any failure
by us or our agents to maintain material compliance with existing or future
regulations will likely have a material adverse impact on our business, and as a
result, on our results of operations, liquidity and cash flows. Additionally,
while we do not envision the near-term submission of any potential future
products for regulatory clearances or approvals, it must be noted that the
process of obtaining regulatory clearances or approvals can be costly and
time-consuming, and as such, there can be no assurance that any sought after
regulatory clearances or approvals will be obtained. Also, while our marketing
efforts for the foreseeable future will be primarily directed towards U.S.
markets, we anticipate eventually pursuing overseas markets for which we
understand regulatory clearances and approvals vary widely from country to
country. Any longer-term failure by us to obtain sought after domestic or
foreign regulatory clearances or approvals may have a material adverse impact on
our longer-term business, and as a result, our results of operations, liquidity
and cash flows.

ONGOING HEALTH CARE INITIATIVES MAY JEOPARDIZE THE DEMAND FOR OUR PRODUCTS, AS A
RESULT OF WHICH, OUR REVENUES AND PROFITABILITY WILL SUFFER.

The uncertainty of health care reform may have a material impact upon our
business. The income and profitability of medical device companies may be
affected by the efforts of government and third party payers to contain or
reduce the costs of health care through various means. In the United States,
there have been, and we expect that there will continue to be, a number of
federal, state and private proposals to control health care costs. These
proposals may contain measures intended to control public and private spending
on health care. If enacted, these proposals may result in a substantial
restructuring of the health care delivery system. Any significant changes in the
health care system could have a substantial impact over time on the manner in
which we conduct our business and may have a material adverse impact on our
business.

RECENT LEGISLATION DESIGNED TO PROTECT THE INTEGRITY AND CONFIDENTIALITY OF
PATIENT MEDICAL RECORDS MAY INCREASE THE COSTS ASSOCIATED WITH DELIVERY OF OUR
PRODUCTS AND, ACCORDINGLY, OUR PROFIT MARGINS MAY DECREASE.

Federal and state laws relating to confidentiality of patient medical records
could limit the use of our product capability to store and utilize medical
information. The Health Insurance Portability and Accountability Act of 1996,
also known as HIPAA, mandates the adoption of national standards for
transmission of certain types of medical information and the data elements used
in such transmissions to insure the integrity and confidentiality of such
information. The U.S. Secretary of Health and Human Services has promulgated
regulations to protect the privacy of electronically transmitted or maintained,
individually identifiable health information. We believe that our products will
enable compliance with the regulations under HIPAA adopting standards for
electronic healthcare transmissions. However, there can be no assurances that we
will be able to comply with the regulations without altering our products and we


                                       30
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

RISKS AND UNCERTAINTIES (CONTINUED)
may be required to incur additional expenses in order to comply with these
requirements. Further, some state laws could restrict the ability to transfer
patient information gathered from our product. Any such restrictions could
decrease the value of our applications to our customers, which could have a
material adverse impact on our business, and as a result, on our results of
operations, liquidity and cash flows.

THE POLICIES AND PRACTICES OF THIRD-PARTY REIMBURSERS SUCH AS MEDICARE MAY
DECREASE THE DEMAND FOR OUR PRODUCTS AND ADVERSELY IMPACT OUR BUSINESS.

By limiting the amount they are willing to reimburse for the purchase of a
personal-use total cholesterol monitor or the obtaining of a total cholesterol
test, third-party reimbursers, including Medicare, may adversely impact the
prices and relative attractiveness of our total cholesterol monitors. Although
we do not believe that the reimbursement policies of third-party reimbursers
have had any significant adverse impact on us to date, any future changes in
their policies or reimbursement rates may adversely impact our ability to
maintain our suggested retail prices or diminish the attractiveness of our total
cholesterol monitors. Although Congress has recently acted favorably towards
providing preventive cholesterol screening tests by professionals for Medicare
seniors, the new Medicare Reform Bill has not been finalized or passed by
Congress. Furthermore, any failure by third-party reimbursers to embrace the
benefits of total cholesterol monitors or to maintain their reimbursement rates
may have a material adverse impact on our business, and as a result, on our
results of operations, liquidity and cash flows.

AS A MEDICAL DEVICE MANUFACTURER, WE ARE PRONE TO PRODUCT LIABILITY CLAIMS AND
IF A CLAIM AGAINST US EXCEEDS THE LIMITS OF OUR INSURANCE COVERAGE OR COVERAGE
IS OTHERWISE DENIED, WE MAY BE FACED WITH A JUDGMENT THAT COULD JEOPARDIZE OUR
EXISTENCE.

The marketing of medical diagnostic devices, such as our total cholesterol
monitors, subjects us to the risk of product liability claims. Although we
follow certain quality assurance policies and procedures in the procuring of
components and assembling of our total cholesterol monitors, these precautions
may not insulate us from liability claims. Moreover, while we maintain product
liability insurance, this insurance is expensive and is subject to various
exclusions and limitations. There can be no assurance that our policies and
procedures will prevent us from being subjected to product liability claims or
that the scope and amount of our in force liability insurance coverage will be
sufficient to prevent a material adverse impact on our business, and as a
result, on our results of operations, liquidity and cash flows.

OUR BUSINESS IS INFLUENCED BY GENERAL ECONOMIC CONDITIONS.

Potential purchasers of our cholesterol monitor may be discouraged by actual or
perceived negative economic conditions which may corresponding have material
adverse effects of on business, and, as a result, on our results of operations,
liquidity and cash flows.

OUR BUSINESS MAY BE ADVERSELY IMPACTED BY GEO-POLITICAL RISKS.

Our business depends on the free flow of products and services through the
channels of commerce. Any significant actual or perceived risks of terrorism may
adversely impact the general economy or the channels of commerce thereby having
material adverse impacts on our business, and, as a result, on our results of
operations, liquidity and cash flows.

                                       31
<PAGE>

ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES                         PAGE
                                                                        ----

Report of Independent Registered Public Accounting Firm................. 33
Consolidated Balance Sheets............................................. 34
Consolidated Statements of Loss......................................... 36
Consolidated Statements of Changes in Stockholders' Deficit............. 37
Consolidated Statements of Cash Flows................................... 38
Notes to Consolidated Financial Statements.............................. 40

                                       32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of
Lifestream Technologies, Inc. and Subsidiaries
Post Falls, Idaho

We have audited the accompanying consolidated balance sheets of Lifestream
Technologies, Inc. and subsidiaries as of June 30, 2004 and 2003, and the
related consolidated statements of loss, changes in stockholders' deficit and
cash flows for the fiscal years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lifestream Technologies, Inc. and subsidiaries at June 30, 2004 and 2003, and
the results of their operations and their cash flows for the fiscal years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
accompanying consolidated financial statements, the Company has incurred
substantial operating and net losses, as well as negative operating cash flows,
since its inception. As a result, the Company has negative working capital and a
stockholders' deficit, including a substantial accumulated deficit, at June 30,
2004. The aforementioned factors raise substantial doubt as to the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                               /s/ BDO Seidman, LLP

Spokane, Washington
August 16, 2004

                                       33
<PAGE>

                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                 ASSETS (Note 2)
<TABLE>
<CAPTION>
                                                                                        JUNE 30,
                                                                                -------------------------
                                                                                   2004           2003
                                                                                ----------     ----------
<S>                                                                             <C>            <C>
Current assets:
   Cash and cash equivalents (Note 11) ....................................     $  590,196     $1,370,126
   Restricted cash held in escrow (Note 11) ...............................         25,293             --
   Accounts receivable, net of allowance for doubtful accounts of
     $298,398 and $453,645, respectively (Notes 4 and 11) .................        495,460        269,398
   Inventories, net (Notes 5 and 11) ......................................        749,304      1,612,590
   Prepaid expenses .......................................................        164,912         38,506
                                                                                ----------     ----------
Total current assets ......................................................      2,025,165      3,290,620
Property and equipment, net (Notes 6, 11 and 12) ..........................        339,207        647,527
Patent rights, net of accumulated amortization of $1,639,794 and $1,556,851
     Notes 11 and 17) .....................................................        480,002        562,945
Deferred financing costs (Note 13) ........................................        609,467        422,897
Note receivable - officer (Note 7) ........................................             --         38,728
Other .....................................................................        158,336        115,208
                                                                                ----------     ----------
Total assets ..............................................................     $3,612,177     $5,077,925
                                                                                ==========     ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       34
<PAGE>


                                       35
                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                 LIABILITIES AND STOCKHOLDERS' DEFICIT (NOTE 2)
<TABLE>
<CAPTION>
                                                                                              JUNE 30,
                                                                                   ------------------------------
                                                                                       2004              2003
                                                                                   ------------      ------------
<S>                                                                                <C>               <C>
Current liabilities:
   Accounts payable ..........................................................     $    940,889      $  2,173,720
   Accrued liabilities (Note 9) ..............................................          827,795           766,047
   Deferred income (Note 10) .................................................               --           250,000
   Current maturities of notes payable (Note 11) .............................        1,169,031           900,000
   Current maturities of capital lease obligations (Note 12) .................           28,148           147,964
                                                                                   ------------      ------------
Total current liabilities ....................................................        2,965,863         4,237,731
Note payable, less current maturities (Note 11) ..............................               --         1,069,932
Capital lease obligations, less current maturities (Note 12) .................            5,880            42,754
Convertible notes, principal face amounts of $6,036,376 and $5,270,000,
   respectively (Note 13) ....................................................        2,703,961         2,386,082
                                                                                   ------------      ------------
Total liabilities ............................................................        5,675,704         7,736,499

Commitments and contingencies (Notes 9, 11, 12, 13, 15, 16 and 17)

Stockholders' deficit (Notes 14 and 15):
   Preferred stock, $.001 par value; 15,000,000 shares authorized; none issued
     or outstanding ..........................................................               --                --
   Common stock, $.001 par value; 750,000,000 and 100,000,000 shares
     authorized, respectively; 181,341,686 and 92,894,590 issued and
     outstanding, respectively ...............................................          181,342            92,895
   Additional paid-in capital ................................................       54,425,383        39,511,226
   Accumulated deficit .......................................................      (56,670,252)      (42,262,695)
                                                                                   ------------      ------------
Total stockholders' deficit ..................................................       (2,063,527)       (2,658,574)
                                                                                   ------------      ------------
Total liabilities and stockholders' deficit ..................................     $  3,612,177      $  5,077,925
                                                                                   ============      ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       35
<PAGE>
                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
                                                                      FISCAL YEAR        FISCAL YEAR
                                                                         ENDED              ENDED
                                                                     JUNE 30, 2004      JUNE 30, 2003
                                                                     -------------      -------------
<S>                                                                  <C>                <C>
Net sales ......................................................     $   2,603,257      $  4,236,653
Cost of sales ..................................................         2,698,673         3,516,827
                                                                     -------------      ------------
Gross profit (loss) ............................................           (95,416)          719,826
                                                                     -------------      ------------
Operating expenses:
     Sales and marketing .......................................         2,142,092         1,003,543
     General and administrative ................................         2,672,043         3,245,396
     Product research and development ..........................            57,510           296,963
     Depreciation and amortization .............................           309,656           442,432
     Loss on disposal of equipment .............................            87,756            12,969
                                                                     -------------      ------------
Total operating expense ........................................         5,269,057         5,001,303
                                                                     -------------      ------------
Loss from operations ...........................................        (5,364,473)       (4,281,477)
                                                                     -------------      ------------
Non-operating income (expense):
     Interest income ...........................................             8,476            17,624
     Amortization of convertible notes discount (Note 13) ......        (5,798,503)       (1,703,431)
     Interest and financing expenses (Notes 11 and 13) .........        (2,662,394)       (1,733,437)
     Amortization of deferred financing costs (Notes 11 and 13)           (815,838)         (349,835)
     Gain on unexercised option and purchase agreement (Note 10)           250,000                --
     Other, net ................................................           (24,825)          (56,389)
                                                                     -------------      ------------
Total non-operating expense, net ...............................        (9,043,084)       (3,825,468)
                                                                     -------------      ------------
Net loss .......................................................     $ (14,407,557)     $ (8,106,945)
                                                                     =============      ============

Net loss per common share - basic and diluted ..................     $       (0.11)     $      (0.24)
                                                                     =============      ============

Weighted average number of common shares outstanding -
   basic and diluted ...........................................       127,862,844        33,229,702
                                                                     =============      ============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       36
<PAGE>
                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                                                                  ADDITIONAL
                                                          COMMON STOCK              PAID-IN        ACCUMULATED
                                                       SHARES        AMOUNT         CAPITAL          DEFICIT            TOTAL
                                                    -----------     --------     ------------      ------------      ------------
<S>                                                  <C>            <C>          <C>               <C>               <C>
Balances as of July 1, 2002 ...................      24,967,997     $ 24,968     $ 32,805,527      $(34,155,750)     $ (1,325,255)

Common stock issued for cash, net of issuance
   costs (Note 14) ............................      34,837,500       34,838        3,448,912                --         3,483,750

Common stock issued for services (Note 14) ....       4,567,140        4,567          468,397                --           472,964

Common stock issued upon conversion of
   convertible debt and accrued interest (Note
   14) ........................................      22,901,730       22,902        2,267,272                --         2,290,174

Common stock issued in settlement of a stock
   purchase agreement dispute (Note 14) .......       1,040,816        1,041           (1,041)               --                --

Retroactive issuance of additional note
   conversion shares to a principal shareholder
   (Note 14) ..................................       4,579,407        4,579          453,362                --           457,941

Compensatory stock options issued for services
   (Note 15) ..................................              --           --           68,797                --            68,797

Net loss ......................................              --           --               --        (8,106,945)       (8,106,945)
                                                    -----------     --------     ------------      ------------      ------------

Balances as of June 30, 2003 ..................      92,894,590       92,895       39,511,226       (42,262,695)       (2,658,574)

Common stock issued for services (Note 14) ....       1,505,844        1,506          204,981                --           206,487

Common stock issued for loan issuance costs
   (Note 11) ..................................       2,593,333        2,593          189,107                --           191,700

Common stock issued to employees for services
   (Note 14) ..................................         975,669          976          116,105                --           117,081

Common stock issued for cash upon conversion of
   warrants, net of issuance costs (Note 14) ..       6,538,461        6,538          320,385                --           326,923

Common stock issued upon conversion of
   convertible debt and accrued interest
    (Note 14) .................................      76,833,789       76,834        6,107,690                --         6,184,524

Beneficial conversion feature and fair value of
   warrants issued with the convertible debt
   (Notes 13 and 14) ..........................              --           --        7,975,889                --         7,975,889

Net loss ......................................              --           --               --       (14,407,557)      (14,407,557)
                                                    -----------     --------     ------------      ------------      ------------

Balances as of June 30, 2004 ..................     181,341,686     $181,342     $ 54,425,383      $(56,670,252)     $ (2,063,527)
                                                    ===========     ========     ============      ============      ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       37
<PAGE>
                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                               FISCAL YEAR       FISCAL YEAR
                                                                                  ENDED             ENDED
                                                                             JUNE 30, 2004     JUNE 30, 2003
                                                                             -------------     -------------
<S>                                                                          <C>               <C>
Cash flows from operating activities:
   Net loss ............................................................     $(14,407,557)     $(8,106,945)
   Non-cash items:
     Depreciation and amortization of property and equipment and patent
       and license rights ..............................................          309,656          442,432
     Amortization of convertible debt discount (Note 13) ...............        5,798,503        1,703,431
     Amortization of deferred financing costs (Notes 11 and 13) ........          815,838          349,835
     Provision for (recovery of) doubtful accounts .....................         (155,247)         407,905
     Increase (reduction) in inventory valuation allowance .............         (353,759)         315,734
     Bonus compensation applied to note receivable - officer (Note 7) ..           38,728               --
     Loss on disposal of equipment .....................................           87,756           12,969
     Retroactive issuance of additional note conversion shares to a
       principal shareholder as an inducement (Note 14) ................               --          457,941
     Issuances of compensatory common stock, options and warrants for
       employee and non-employee services (Note 14) ....................          323,568          296,922
     Beneficial conversion feature of convertible debt issued to related
       party (Note 13) .................................................        1,728,889               --
   Net changes in assets and liabilities:
     Accounts receivable ...............................................          (70,815)        (369,285)
     Inventories .......................................................        1,217,045          658,301
     Prepaid expenses ..................................................         (126,406)         107,607
     Accounts payable ..................................................       (1,232,831)         802,345
     Accrued liabilities ...............................................          765,648          461,075
     Deferred income (Note 10) .........................................         (250,000)         250,000
     Change in other non-current assets ................................          148,572             (423)
                                                                             ------------      -----------
Net cash used in operating activities ..................................       (5,362,412)      (2,210,156)
                                                                             ------------      -----------
Cash flows from investing activities:
   Capital expenditures ................................................           (6,149)         (16,407)
                                                                             ------------      -----------
Net cash used in investing activities ..................................           (6,149)         (16,407)
                                                                             ------------      -----------
Cash flows from financing activities:
   Proceeds from issuances of convertible notes, net (Note 13) .........        5,244,592               --
   Proceeds from sales of common stock  (Note 14) ......................          326,923        3,483,750
   Payments on capital lease obligations (Note 12) .....................         (156,690)         (42,527)
   Payments of borrowings under credit facility (Note 11) ..............               --         (251,086)
   Payments on notes payable (Note 11) .................................         (800,901)         (33,302)
   Payments on convertible notes (Note 13) .............................               --         (750,000)
   Restricted cash equivalent (Note 11) ................................          (25,293)         600,000
                                                                             ------------      -----------
Net cash provided by financing activities ..............................        4,588,631        3,006,835
                                                                             ------------      -----------
Net increase (decrease) in cash and cash equivalents ...................         (779,930)         780,272
Cash and cash equivalents at beginning of year .........................        1,370,126          589,854
                                                                             ------------      -----------
Cash and cash equivalents at end of year ...............................     $    590,196      $ 1,370,126
                                                                             ============      ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       38
<PAGE>
                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                               FISCAL YEAR       FISCAL YEAR
                                                                                  ENDED             ENDED
                                                                             JUNE 30, 2004     JUNE 30, 2003
                                                                             -------------     -------------
<S>                                                                          <C>               <C>
Supplemental schedule of cash activities:
   Interest paid in in cash ............................................     $  264,277        $  459,398

Supplemental schedule of non-cash  financing activities:
   Discount on beneficial conversion feature and fair value of
     detachable stock warrants (Note 13) ...............................     $6,247,000        $       --
   Convertible notes and accrued interest converted to common
     stock (Note 14) ...................................................     $6,184,524        $2,290,174
   Issuance of common stock in exchange for financing costs
      (Notes 11 and 14) ................................................     $  191,700        $  807,941
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       39
<PAGE>

                 LIFESTREAM TECHNOLOGIES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    NATURE OF BUSINESS AND ORGANIZATIONAL STRUCTURE
Lifestream Technologies, Inc., together with its wholly-owned subsidiaries (the
"Company"), is a Nevada corporation headquartered in Post Falls, Idaho, and is a
marketer of a proprietary cholesterol monitor for at-home use by health
conscious consumers and at-risk medical patients. Through regular monitoring of
one's total cholesterol level, an individual can continually assess their
susceptibility to developing cardiovascular disease. Once diagnosed with an
elevated total cholesterol level, regular at-home testing with one of our
cholesterol monitors enables a patient to readily ascertain the benefits derived
from diet modification, an exercise regimen and/or a drug therapy, thereby
reinforcing their continuing compliance with an effective cholesterol-lowering
program. The Company also markets and sells dry-chemistry test strips utilized
with its cholesterol monitor for measuring total cholesterol.

The Company's current base of customers primarily consists of national and
regional drug store chains, and, to a lesser extent, pharmacy-featuring grocery
store chains, specialty catalog and internet-based direct marketers and
independent pharmacies throughout the United States.

2.    SUBSTANTIAL DOUBT REGARDING THE COMPANY'S ABILITY TO CONTINUE
      AS A GOING CONCERN
The Company has incurred substantial operating and net losses, as well as
negative operating cash flow, since its inception. As a result, the Company
continued to have significant working capital and stockholders' deficits
including a substantial accumulated deficit at June 30, 2004. In recognition of
such, its independent registered public accountants included an explanatory
paragraph in their report on the Company's consolidated financial statements for
the fiscal years ended June 30, 2004 and 2003, that expressed substantial doubt
regarding the Company's ability to continue as a going concern.

In order to address the Company's ability to continue as a going concern, it has
initiated or completed the following financing activities:
    o    On September 13, 2003, the Company completed a private placement
         offering of $3,350,000 in unsecured convertible debentures from which
         it received $3,067,000 in net cash proceeds;
    o    On February 19, 2004, the Company completed an additional private
         placement offering of $2,775,000 in unsecured convertible debentures
         from which it received $2,077,592 in net cash proceeds;
    o    On March 1, 2004, the Company received $100,000 in net proceeds from
         the issuance of an unsecured convertible debenture in the principal
         amount of $122,000;
    o    On April 28, 2004, the Company's shareholders elected to increase its
         authorized common shares to 750 million shares for use in future
         financing transactions; and
    o    During the second half of fiscal 2004, the Company received
         approximately $327,000 in proceeds from the exercise of warrants issued
         in connection with prior financings.

With respect to the Company's sales, gross margins and operating expenses, it
has:
    o    Continued to reduce the cost of its current cholesterol monitor and
         expects to realize improved gross margins;
    o    Depleted the remaining inventory of its higher-cost, predecessor device
         during fiscal 2004;
    o    Continued negotiations with a major retailer, as well as smaller
         retailers, to sell its products;
    o    Developed a continuing education program implemented in the first
         quarter of fiscal 2005 to broaden awareness and educate pharmacists on
         the benefits of the it's products;
    o    Developed a consumer point-of-sale awareness program for those patients
         purchasing certain cholesterol-lowering prescriptions, which is
         currently being tested;
    o    Continued to conduct marketing activities it began in October 2003,
         primarily targeted radio advertising;
    o    Continued to support and monitor the Medicare reimbursement
         considerations of the federal government for cholesterol testing;
    o    Continued to operate with a core staff of only 19 employees; and
    o    Continued to implement cost-cutting measures to reduce administrative,
         research and development costs.

                                       40
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company will continue to require additional financing to fund its
longer-term operating needs, including continuing marketing activities to build
broad public awareness of its cholesterol monitor. The amount of additional
funding needed to support the Company until that point in time at which it
forecasts that its business will become self-sustaining from internally
generated cash flow is highly dependent upon the Company's ability to continue
conducting marketing activities and the success of these campaigns on increasing
awareness to consumers and pharmacists.

Should the Company be unsuccessful in any of the initiatives or matters
discussed above, its business, and, as a result, its consolidated financial
position, results of operations and cash flow will likely be materially
adversely impacted, the effects from which it may not recover.

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the operations of the Company
and its two wholly-owned subsidiaries, Lifestream Diagnostics, Inc. and Secured
Interactive Technologies, Inc. All material intercompany transactions and
balances have been eliminated in consolidation.

FISCAL YEAR-END
The Company's fiscal year-end is June 30. References to a fiscal year refer to
the calendar year in which such fiscal year ends.

USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts and timing of revenue and expenses, the reported amounts and
classification of assets and liabilities, and disclosure of contingent assets
and liabilities. These estimates and assumptions are based on the Company's
historical results as well as management's future expectations. The Company's
actual results could vary materially from management's estimates and
assumptions.

RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for the prior fiscal
year have been reclassified to be consistent with the current fiscal year's
presentation.

CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments with a maturity date
of three months or less at the date of purchase. The Company maintains its cash
and cash equivalents with high quality financial institutions thereby minimizing
any associated credit risks.

ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company records an allowance for doubtful accounts based on specifically
identified amounts that the Company believes to be uncollectible and those
accounts that are past due beyond a certain date. If actual collections
experience changes, revisions to the allowance may be required. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance.

INVENTORIES
Inventories, which primarily consist of component parts, dry-chemistry test
strips, assembled devices and related supplies, are stated at the lower of
first-in, first-out cost or market. The Company records an allowance for
obsolete inventory based on a)specifically identified component parts the
Company believes will no longer be utilized in its current model of cholesterol
monitor and b) based upon specifically identified finished goods the Company
believes will not be sold prior to its expiration date.

                                       41
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PATENT RIGHTS
Direct costs incurred in acquiring each patent right have been capitalized and
are being subsequently amortized into operating results on a straight-line basis
over seventeen years, such period being equal to both the statutory and
estimated useful life of each respective patent. Management, on at least a
quarterly basis, evaluates the patents for impairment by comparing the related
estimated future cash flows, on an undiscounted basis, to its net book value.
Factors considered in estimating future cash flows include the status of current
litigation surrounding its most significant patent, the likelihood of
development or sale of the patent (if unutilized), and likely cash flows from
royalties to be received from others for use of the patented technology. If
impairment is indicated, the net book value is reduced to an amount equal to the
estimated future cash flows, on an appropriately discounted basis.

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Cost includes expenditures for
major additions and improvements as well as any incremental interest costs
incurred during the period in which activities necessary to get the asset ready
for its intended use are in progress. Maintenance and repairs which do not
extend the useful life of the related property or equipment are charged to
operations as incurred. The provision for related depreciation has been computed
using the straight-line method over the following estimated useful lives:
production machinery and equipment - five years; technology hardware and
software - three years; and office furniture and equipment - five years. The
provision for related amortization is computed using the straight-line method
over the shorter of the estimated useful lives of the leasehold improvements,
being five years, or the contractual lives of the underlying capital leases.

The net book value of property and equipment sold or retired is removed from the
asset and related depreciation and amortization accounts with any resulting net
gain or loss included in the determination of net loss.

DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the interest method over the term
of the related debt agreement.

DEFERRED INCOME TAXES
Deferred income tax assets and liabilities are recognized for the expected
future income tax benefits or consequences, based on enacted laws, of temporary
differences between tax and financial statement reporting. Deferred tax assets
are then reduced by a valuation allowance for the amount of any tax benefits
that more likely than not, based on current circumstances, are not expected to
be realized.

PRODUCT WARRANTIES
The Company's products are accompanied by limited liability warranties of
varying durations against defects in material or workmanship. At the time of
each product's sale, the Company's management makes an estimate based on its
historical experience and future expectations of the probable future cost to be
incurred in honoring the accompanying warranty and accrues a corresponding
liability. To date, the Company's warranty liabilities, in the aggregate, have
not been material.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values reported for cash equivalents, restricted cash equivalents,
accounts receivable, accounts payable and accrued expenses materially
approximated their respective fair values at each balance sheet date due to the
immediate or short-term maturity of these financial instruments. The carrying
values reported for non-current obligations materially approximated their
respective fair values at each balance sheet date as the stated or discounted
rates of interest reflected then prevailing market rates of interest.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
The Company generates revenue primarily from sales of its cholesterol monitors
and dry-chemistry test strips utilized in its cholesterol monitors. The Company
recognizes a sale, including related shipping and handling income, and the cost
of the sale, upon product shipment provided that all material risks and rewards
of ownership are concurrently transferred to the customer, collection of the
related receivable is reasonably assured, and the Company is able to reliably
estimate an appropriate allowance for sales returns based on its relevent
historical product experience and future expectations. In certain instances,
shipments made to a retail customer may not transfer risk of ownership at the


                                       42
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

time of shipment, in which case, the revenue is not recognized until the time
risks of ownership transfer, generally when the product is sold by the retailer
to a consumer.

SALES RETURNS ALLOWANCE
The Company records an allowance for sales returns at the time revenue is
recognized based upon historical returns as a percentage of sales, as well as
future expectations on returns of test strips based upon the length of time from
their expiration date at the time of sale.

MAJOR CUSTOMERS
Three customers individually accounted for approximately 21%, 12% and 10% of the
Company's consolidated net sales for fiscal 2004 and approximately 37%, 13%, and
44% of accounts receivable, net at June 30, 2004, respectively. Two customers
individually accounted for approximately 24% and 23% of the Company's
consolidated net sales for fiscal 2003 and approximately 10% and 30% of accounts
receivable, net at June 30, 2003, respectively.

ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Consolidated sales and
marketing expenses include advertising costs of $1,762,041 and $469,669 during
fiscal 2004 and 2003, respectively.

PRODUCT RESEARCH AND DEVELOPMENT
The Company expenses all product research and development costs as incurred.

STOCK-BASED COMPENSATION
As allowed by Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company has elected to
retain the compensation measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
its related interpretations for stock options issued to employees. Under APB No.
25, compensation cost is recognized at the measurement date for the amount, if
any, that the quoted market price of the Company's common stock exceeds the
option exercise price. The measurement date is the date at which both the number
of options and the exercise price for each option are known. No stock-based
employee compensation cost is reflected in the Company's reported net losses, as
all options granted had an exercise price equal to or in excess of the market
value of the underlying common stock on the respective dates of grant.

If the Company had accounted for its stock-based employee compensation under the
fair value recognition and measurement principles of SFAS No. 123, the Company's
reported net losses would have been adjusted to the pro forma net losses
presented below:
<TABLE>
<CAPTION>
                                                          FISCAL YEARS ENDED
                                                     -----------------------------
                                                     JUNE 30, 2004     JUNE 30, 2003
                                                     -------------     -------------
<S>                                                  <C>               <C>
Net loss, as reported ..........................     $(14,407,557)     $(8,106,945)

Add: SFAS No. 123 compensation expense..........         (878,387)      (1,609,790)
                                                     ------------      -----------

Pro forma net loss .............................     $(15,285,994)     $(9,716,735)
                                                     ============      ===========

Net loss per share:

    Basic and diluted  - as reported ...........     $      (0.11)     $     (0.24)
                                                     ============      ===========

    Basic and diluted - pro forma ..............     $      (0.12)     $     (0.29)
                                                     ============      ===========
</TABLE>

                                       43
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
                                                       FISCAL YEARS ENDED
                                                 -------------------------------
                                                 JUNE 30, 2004     JUNE 30, 2003
                                                 -------------     -------------
<S>                                                <C>               <C>
Risk-free interest rate.....................          4.1%              4.3%

Expected volatility.........................        130.0%            123.9%

Expected life in years......................       5 - 10            2 - 10

Expected dividends..........................         None              None
</TABLE>

The estimated fair values for stock options granted during 2003 ranged from
$0.19 to $0.75. The estimated fair value for stock options granted during 2004
was $0.03.

NET LOSS PER SHARE
Basic and diluted net loss per share has been computed by dividing net loss by
the weighted average number of common shares outstanding during the fiscal year.
At June 30, 2004 and 2003, the Company had stock options, stock warrants and
convertible debt outstanding that could potentially be exercised or converted
into 118,277,677 and 64,833,575 additional common shares, respectively. Should
the Company report net income in a future period, diluted net income per share
will be separately disclosed giving effect to the potential dilution that could
occur under the treasury stock method if these stock option, stock warrants and
convertible debt were exercised or converted into common shares.

SEGMENT REPORTING
The Company's chief operating decision makers consist of members of senior
management that work together to allocate resources to, and assess the
performance of, the Company's business. Senior management currently manages the
Company's business, assesses its performance, and allocates its resources as a
single operating segment.

To date, the Company's products have been principally marketed to customers
residing within the United States of America. Net sales realized from customers
residing in other geographic markets were less than 1% of consolidated net sales
in fiscal 2004 and 2003.

RECENTLY ADOPTED ACCOUNTING STANDARDS

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," addresses
consolidation by business enterprises of variable interest entities that possess
certain characteristics. FIN 46 requires that if a business enterprise has a
controlling financial interest in a variable interest entity, the assets,
liabilities, and results of the activities of the variable interest entity must
be included in the consolidated financial statements with those of the business
enterprise. FIN 46 applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. As the Company has not had, and continues
not to have, any ownership in variable interest entities, the Company's adoption
of FIN 46, as required on January 31, 2003, had no impact on its consolidated
financial statements.

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS No. 149"). SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149
requires that contracts with comparable characteristics be accounted for
similarly and clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except in
certain circumstances, and for hedging relationships designated after June 30,
2003. The Company adopted SFAS No. 149, as required, on July 1, 2003, with no
impact on the consolidated financial statements.

                                       44
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
established standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. The Company adopted SFAS No. 150, as required, on May
31, 2003, for financial instruments entered into or modified after such date,
with no impact on its accompanying consolidated financial statements. The
remaining provisions of SFAS No. 150 were effective beginning with the Company's
fiscal 2004 first quarter ending September 30, 2003. The Company adopted these
remaining provisions of SFAS No. 150, as required, with no impact on the
consolidated financial statements.

4.    ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following schedules set forth the activity in the Company's allowance for
doubtful accounts receivable for the following periods:
<TABLE>
<CAPTION>
                                                                                      FISCAL YEARS ENDED
                                                                                ----------------------------
                                                                                 JUNE 30,          JUNE 30,
                                                                                   2004              2003
                                                                                -----------      -----------
         <S>                                                                    <C>              <C>
         Balance, beginning of year .......................................     $   453,645      $    91,188
         Additions to allowance ...........................................          40,189          427,617
         Deductions, net of recoveries ....................................        (195,436)         (65,160)
                                                                                -----------      -----------
         Balance, end of year .............................................     $   298,398      $   453,645
                                                                                ===========      ===========
</TABLE>

5.    INVENTORIES, NET
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
                                                                                         JUNE 30,
                                                                                ----------------------------
                                                                                   2004              2003
                                                                                -----------      -----------
         <S>                                                                    <C>              <C>
         Raw materials ....................................................     $   444,880      $ 1,203,877
         Work in process ..................................................          80,814           63,861
         Finished goods ...................................................         176,971          719,548
         Finished goods at retail locations ...............................          67,576               --
                                                                                -----------      -----------
                                                                                    770,241        1,987,286
         Less allowance for inventory obsolescence ........................         (20,937)        (374,696)
                                                                                -----------      -----------
         Inventories, net .................................................     $   749,304      $ 1,612,590
                                                                                ===========      ===========
</TABLE>

6.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
                                                                                         JUNE 30,
                                                                                ----------------------------
                                                                                   2004              2003
                                                                                -----------      -----------
         <S>                                                                    <C>              <C>
         Production machinery and equipment ...............................     $   687,735      $   889,545
         Technology hardware and software .................................         588,307          583,844
         Leasehold improvements ...........................................         368,495          368,495
         Office furniture and equipment ...................................         125,250          123,565
                                                                                -----------      -----------
                                                                                  1,769,787        1,965,449
         Less accumulated depreciation and amortization....................      (1,430,580)      (1,317,922)
                                                                                -----------      -----------
         Property and equipment, net ......................................     $   339,207      $   647,527
                                                                                ===========      ===========
</TABLE>

                                       45
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.    NOTE RECEIVABLE - OFFICER
Through fiscal 2001, the Company's Board of Directors periodically approved the
advancement of funds to the Company's Chief Executive Officer. The underlying
promissory note was unsecured, accrued interest at a stated interest rate of
8.75% per annum and required bi-weekly repayments of principal and interest
through May 23, 2014.

Effective May 1, 2002, the Board of Directors indefinitely suspended the
bi-weekly servicing requirement. The Board of Directors subsequently awarded in
August 2003, the Company's Chief Executive Officer a $60,000 bonus for his
fiscal 2002 performance with such bonus applied in its entirety against the
outstanding note receivable balance.

On June 22, 2004 and August 29, 2003, the Board of Directors awarded the
Company's Chief Executive Officer a bonus of $48,840 and $3,389 for his fiscal
2004 and 2003 performance. These bonuses were applied against the remaining
outstanding principal and accrued interest of the note receivable.

8.    DEFERRED TAX ASSETS
The Company's deferred tax assets principally relate to (i) net operating loss
carry-forwards that are available, within statutory annual limits, to offset
future taxable income, if any, (ii) purchased software technology and (iii)
compensatory stock options granted. These deferred tax assets, which
approximated $17.9 million and $15.5 million at June 30, 2004 and 2003,
respectively, were fully offset by valuation allowances for financial reporting
purposes. At June 30, 2004, the Company had net operating loss carry-forwards of
approximately $40.7 million that expire in calendar years 2006 through 2024.

9.    ACCRUED LIABILITIES Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                                      JUNE 30,
                                                                                ---------------------
                                                                                  2004         2003
                                                                                --------     --------
         <S>                                                                    <C>          <C>
         Accrued royalties payable ........................................     $257,535     $104,104
         Accrued sales returns, including warranty obligations.............      238,064      103,947
         Accrued wages, benefits and related taxes ........................      184,784       79,672
         Accrued interest payable .........................................      138,759      472,413
         Accrued other ....................................................        8,653        5,911
                                                                                --------     --------
         Total accrued liabilities ........................................     $827,795     $766,047
                                                                                ========     ========
</TABLE>

10.   OPTION AND PURCHASE AGREEMENT
Pursuant to an option and purchase agreement dated November 20, 2002, the
Company received $250,000 from an unrelated party in exchange for granting them
an option to purchase for an additional $500,000 a currently unutilized
technology patent to which the Company claims ownership. The Company has
reflected the $250,000 received as deferred income at June 30, 2003. As this
option and purchase agreement subsequently expired unexercised on July 10, 2003,
the Company recognized $250,000 as non-operating income during its fiscal 2004
first quarter.

11.   NOTE PAYABLE
Effective May 1, 2003, the Company renewed its then expiring revolving credit
facility agreement with a financial institution. Under the new agreement, the
Company's then outstanding balance of $2,197,800 was bifurcated into a
$2,000,000 twenty-four month term loan ("term loan") and a $197,800 advance loan
("advance loan"). The term loan accrues interest at a fixed rate of 15% per
annum and is to be repaid through the financial institution's retention of the
first $75,000 of each month's assigned accounts receivable collections. The
advance loan accrued interest at 15% and was repaid on March 31, 2004, through
the financial institution's additional retention of 25% of each month's assigned
accounts receivable collections over and beyond the initial $75,000 in
collections retained to service the term loan. On March 31, 2004, the financial
institution became entitled to retain ten percent of all subsequently collected
accounts receivable, subject to a limitation of ten percent of the term loan's
then outstanding balance, with the aggregate retentions to be returned to the
Company upon its full repayment of the term loan. As of June 30, 2004, $25,293
had been retained and was being held in an escrow account. The term loan is

                                       46
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

secured and collateralized by the Company's cash and cash equivalents, accounts
receivable, inventory, property and equipment and intellectual property. Should
any category of collateral fall below specified percentages and margins, the
financial institution will be entitled to retain additional accounts receivable
collections sufficient to restore such percentages and margins. Any principal
and accrued interest balances remaining on the term loan will be due and payable
as a lump sum on April 1, 2005. The remaining term loan may be prepaid at any
time, without penalty, at the Company's option. In consideration for extending
the above loans, the Company agreed to pay an annual fee of $100,000, beginning
on May 1, 2003, and upon each annual anniversary thereafter on which the term
loan remains unpaid. The initial annual fee was satisfied through the issuance
of 1,000,000 shares of the Company's common stock. During fiscal 2004 the
Company issued 2,593,333 shares of common stock as partial payment of the annual
fee for the May 1, 2004 through April 30, 2005 period and a balance of
approximately $24,500 remains payable at June 30, 2004. These annual fees are
amortized to deferred financing costs over the renewal period.

12.   OPERATING AND CAPITAL LEASES
The Company leases its corporate facilities as well as certain equipment under
operating leases. Certain of these operating leases are noncancellable and
contain rent escalation clauses. The Company incurred aggregate rent expense
under operating leases of $109,117 and $128,866 during fiscal years 2004 and
2003, respectively. The Company also leases certain equipment under capital
leases. The aggregate net carrying value of the underlying collateralizing
assets was approximately $194,000 and $285,000 at June 30, 2004 and 2003,
respectively, and depreciation of leased capital assets is charged to
depreciation expense.

The future aggregate minimum lease payments under lease agreements in existence
at June 30, 2004 are as follows:
<TABLE>
<CAPTION>
                                                              OPERATING    CAPITAL
         FISCAL YEARS ENDING JUNE 30,                           LEASES      LEASES
         -------------------------------------------------------------------------
         <S>                                                   <C>         <C>
         2005 ............................................     $69,026     $30,612
         2006 ............................................       1,116       6,172
         2007 ............................................       1,116          --
         2008 ............................................       1,116          --
         2009 ............................................         372          --
         Thereafter ......................................          --          --
                                                               -------     -------
         Total lease payments ............................     $72,746      36,784
                                                               =======
         Less imputed interest ...........................                   2,756
                                                                           -------
         Present value of net minimum lease payments......                  34,028
         Less current maturities .........................                  28,148
                                                                           -------
         Total long-term capital lease obligation ........                 $ 5,880
                                                                           =======
</TABLE>

13.   CONVERTIBLE DEBT
June through November 2001 Issuances
From June 2001 through November 2001, the Company issued unsecured convertible
debentures, $3,840,000 of which remains outstanding with one debenture holder at
June 30, 2004. These debentures (i) accrue interest at the prime rate plus two
percent (6.25% at June 30, 2004), (ii) are currently convertible at the option
of the holder into common stock of the Company at a stated rate of $0.10 per
share, and (iii) become due and payable on various dates between July 1, 2006
and November 20, 2006. The holder may not convert its debentures to the extent
that conversion would result in the holder's beneficial ownership of 9.99% or
more of the Company's then outstanding common shares. The holder of these
debentures has a one-time right to convert a portion of the debentures after the
closing of any subsequent private offering at less than $0.10 per common share
(limited to 9.99% ownership). The holder exercised this right during the third
quarter of 2004 and converted $180,000 of principal and $60,000 of accrued
interest at $0.05 resulting in $240,000 of additional expense upon conversion
related to the beneficial conversion feature. The Company has the right to force
conversion of the debentures if the market price of its common stock exceeds
$3.00 per share for 20 consecutive trading days.

                                       47
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 2003 Issuances
On September 13, 2003, the Company issued $3,350,000 in unsecured convertible
debentures from which it received $3,067,000 in net cash proceeds. These
debentures, which have an aggregate principal face amount of $199,376 at June
30, 2004, (i) accrue interest at a fixed rate of 8.0% per annum, which is
payable at the Company's option in either cash or authorized and unissued shares
of its common stock. The debentures were convertible at the option of the
holders at a stated rate of $0.13 per share and were due and payable on
September 12, 2006. For every two dollars of original debenture principal, the
holder received a detachable stock purchase warrant allowing for the purchase
over the subsequent two-year period of a share of the Company's common stock at
$0.2144 per share. Holders may not convert their debentures or exercise their
warrants to the extent that conversion or exercise would result in the holders'
beneficial ownership of 4.99% or more of the Company's then outstanding common
shares. A registration statement filed with the United States Securities and
Exchange Commission ("SEC") registering the resale of the preceding debentures
and warrants became effective on December 23, 2003.

On January 13, 2004, the Company entered into an exchange agreement with each
holder of its convertible debentures that were issued in September 2003. Under
the exchange agreement, each debenture holder agreed to exchange the principal
amount of its debenture for shares of the Company's common stock, at the rate of
$0.09 of debenture principal per share of common stock. Holders may not convert
their debentures to the extent that conversion would result in the holders'
beneficial ownership of 4.99% or more of the Company's then outstanding common
shares. Accrued but unpaid interest of $149,659 related to these debentures was
paid at the time of the exchange by the issuance of additional shares of common
stock at the rate of $0.09 per share. Accordingly, in January 2004, the Company
issued 32,427,204 shares of common stock upon exchange of debenture principal in
the amount of $2,975,624 and the payment of accrued but unpaid interest of
$149,659. Additionally, the Company issued 2,227,807 shares of common stock to
adjust the conversion rate applied to $175,000 of principal previously converted
by a debenture holder to the $0.09 rate stated in the exchange agreement. As a
result of the above, in January 2004 the Company recognized $1,488,889 of
additional financing expense related to the beneficial conversion features of
the exchange and amortized to expense $2,667,676 of previously existing debt
discount related to the convertible debentures issued in September 2003.

The remaining principal balance from the September issuance of $199,376 at June
30, 2004 was subsequently converted during the first quarter of fiscal 2005,
resulting in no further convertible debenture principal or interest outstanding
related to the September 2003 issuance.

February 2004 Issuances
On February 19, 2004, the Company completed a private placement offering of
$2,775,000 in unsecured convertible debentures from which we received $2,077,592
in net cash proceeds. These debentures, which have an aggregate principal face
amount of $1,997,000 at June 30, 2004, become due and payable on February 19,
2006. The purchase price for the convertible debentures gives effect to an
original issue discount of approximately $500,000, or an effective annual
interest rate of 9%, the amount of which was withheld from the proceeds at the
time of the closing of the financing and are being amortized to deferred
financing costs over the term of the debentures. The debentures are convertible
at a conversion price of $0.05 per share (66% of the average of the five
consecutive closing bid prices immediately prior to the closing date of the
offering). The conversion price is subject to adjustment upon the occurrence of
certain events including stock dividends, subdivisions, combinations and
reclassifications of the Company's common stock. In connection with this
transaction participating warrant holders agreed to exercise outstanding
warrants held by them to the extent such exercise would not result in any
participant's beneficial ownership of 4.99% or more of the Company's then
outstanding common shares.

Participants in the February 19, 2004 offering received detachable stock
purchase warrants allowing for the purchase of a number of common shares equal
to 30% of the number of shares which could be obtained upon conversion of the
debenture principal outstanding on February 19, 2004. The warrants can be
exercised over a nineteen-month period and have an exercise price of $0.065 per
share of the Company's common stock, subject to adjustment upon the occurrence
of events substantially identical to those provided for in the debentures. The
Company has the right to call the warrants in the event that the average closing
price of the Company's common stock exceeds 200% of the exercise price for a
consecutive 20-day trading period. Holders may not convert debentures or


                                       48
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

exercise warrants to the extent that conversion or exercise would result in the
holders' beneficial ownership of 4.99% or more of the Company's then outstanding
common shares.

On March 22, 2004, the Company filed a registration statement with the United
States Securities and Exchange Commission ("SEC") registering the resale of the
common shares underlying the debentures and warrants issued on February 19,
2004, which became effective April 5, 2004. The Company also agreed to seek
shareholder approval to increase the number of authorized common shares to a
minimum of 500 million shares before April 30, 2004. Shareholder approval to
increase the authorized common shares to 750 million was obtained on April 28,
2004.

Investors in the February 19, 2004, financing have been granted the option to
purchase up to an additional $1,220,000 of convertible debentures and warrants
with terms and conditions substantially identical to those applicable to the
February 19, 2004, transaction. This option expires on October 28, 2004.

The agreements entered into in connection with the February 19, 2004 transaction
requires that the Company obtain the unanimous approval of the debenture holders
prior to the occurrence of certain events including stock dividends,
subdivisions, combinations and reclassifications of the Company's common stock
until less than 20% of the principal remains outstanding on the debentures. The
agreement further stipulates that no debenture may be prepaid without the
consent of the holder and that each debenture holder has a right of first
refusal to participate in any new financing transaction consented to through
June 10, 2005.

March 2004 Issuance
In March 2004, the Company issued an unsecured convertible debenture in the
amount of $122,000 from which it received $100,000 in net proceeds after an
original issue discount of $22,000. The Company also issued 732,000 detachable
stock purchase warrants in connection with this transaction. The convertible
debenture and common stock purchase warrants have identical terms and conditions
to those issued on February 19, 2004. The principal balance outstanding for this
debenture was $122,000 at June 30, 2004.

At the respective dates of issuance, the Company was required under accounting
principles generally accepted in the United States of America to ascertain for
each of the above debenture issuances the fair value of the detachable stock
warrants and resulting beneficial conversion feature. For each debenture
issuance, the aggregate fair value of the detachable warrants and beneficial
conversion features was determined to be equal to the aggregate principal face
amount of the debt proceeds received, and as such, these amounts were recorded
as debt discounts by increasing additional paid-in capital. These debt discounts
are being amortized over the respective lives of the underlying debentures. The
aggregate unamortized debt discount amounted to $3,332,415 and $2,883,918 at
June 30, 2004 and 2003, respectively.

The remaining $6,036,376 in principal of the Company's outstanding convertible
debentures at June 30, 2004, mature during the Company's fiscal years ending as
follows:
<TABLE>
<CAPTION>
         FISCAL YEARS ENDING JUNE 30,                           PRINCIPAL
         ----------------------------------------------------------------
         <S>                                                   <C>
         2005 ............................................     $       --
         2006 ............................................      1,997,000
         2007 ............................................      4,039,376
                                                               ----------
         Total principal payments.........................     $6,036,376
                                                               ==========
</TABLE>

                                       49
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.   STOCKHOLDERS' DEFICIT

General
The Company is restricted under Nevada corporate law from declaring any
dividends to shareholders due to current working capital and stockholders'
deficits.

The Company's shareholders elected to increase its authorized common shares from
100 million to 250 million and 750 million at special shareholders' meetings
held on December 1, 2003 and April 28, 2004, respectively.

Common Stock Issued For Cash
During fiscal 2003 the Company issued 34,837,500 shares of its common stock in a
"best efforts" private placement with accredited investors from which it
received $3,483,750 (net of $55,000 in issuance costs). The fiscal 2003
placements included 50,000 and 97,500 common shares sold, at the same price paid
by unrelated parties, to a member of the Company's Board of Directors and the
Company's Chief Financial Officer, respectively.

During fiscal 2004 the Company issued 6,538,461 shares of its common stock upon
exercise of outstanding warrants by accredited investors from which it received
$326,923 in proceeds.

Common Stock Issued For Services
During fiscal 2004 and 2003, the Company issued 1,505,844 and 4,567,140 common
shares, respectively, to unrelated parties for the performance of various
services. The Company recognized associated expenses of $206,487 and $472,964
during fiscal 2004 and 2003, respectively, based upon the fair market value of
the common shares at their respective dates of issuance. The fiscal 2004 amount
includes 350,000 common shares issued to its former Chief Financial Officer.

Common Shares Issued Upon Conversion of Convertible Debt
During fiscal 2004, holders of $5,480,624 of the Company's then outstanding
convertible notes converted such notes, and $703,900 in accrued interest
thereon, into 76,833,789 common shares. During fiscal 2003, holders of
$1,794,984 of the Company's then outstanding convertible notes converted such
notes, and $495,190 in accrued interest thereon, into 22,901,730 common shares.

Other Issuances of Common Shares
In January 2003, the Company issued 1,040,816 previously escrowed registered
shares of its common stock to an institutional shareholder in full and final
resolution of a dispute regarding the number of common shares it was entitled to
under an anti-dilution guarantee. As part of this resolution, the institutional
shareholder agreed to the cancellation of all outstanding stock purchase
warrants held by it and to waive any potential liquidated damage claims it may
have had against the Company pursuant to a related registration rights
agreement.

In March 2003, the Company elected to retroactively issue a principal
shareholder, who had previously converted certain outstanding notes of the
Company at the then stated rate of $1.00 per common share, an additional
4,579,407 common shares as an inducement for him to participate in a subsequent
private placement of common shares at $0.10 per share.

In January 2004, the Company issued 975,669 restricted shares of its common
stock to certain employees as payment for $117,081 in compensation expense.

During fiscal 2004, the Company issued 2,593,333 shares of its common stock to a
financing company in partial settlement of its annual loan renewal fee for the
May 2004 through April 2005 period.

Stock Options and Warrants
During fiscal 2004, the Company issued 9,138,427 stock options to various
employees under its newly adopted 2004 Stock Compensation Plan (See Note 15). No
stock options or warrants were issued to consultants during fiscal 2004 and no
stock options or warrants were issued during fiscal 2003 to employees or
consultants.


                                       50
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In previous years, the Company entered into several agreements with third
parties for the performance of various services over subsequent two to three
year periods. In connection therewith, the Company granted these service
providers stock options with various exercise prices and expiration dates.
During fiscal 2004 and 2003, the Company recognized various expenses aggregating
$0 and $68,797, respectively, for the fair value of the issued stock options. As
of June 30, 2004, all stock options had been fully vested and the related
expense had been fully recognized.

15.   STOCK OPTIONS AND WARRANTS
The Company has an Employee Stock Option Plan (the "Plan") that provides for the
grant of options to employees to purchase shares of the Company's common stock
at exercise prices determined by the Board of Directors. As of June 30, 2004,
1,050,805 options originally made available under the Plan remain available for
grant. The Company also grants from time to time stock options and warrants
outside the Plan to directors, vendors and others to purchase shares of the
Company's common stock at exercise prices as determined by the Chief Executive
Officer and approved by the Board of Directors. These options are granted as
payment of services or as an inducement to provide the Company with financing.

On June 10, 2002, the Company's shareholders approved the adoption of the 2002
Stock Option Plan ("2002 Plan") pursuant to which two million shares of the
Company's common stock were reserved for future issuance upon exercise of
options granted at exercise prices to be approved by the Board of Directors.
These options may be issued to directors, officers, employees, or other persons
who perform services on behalf of the Company. No options have been granted
under the 2002 Plan as of June 30, 2004.

On June 22, 2004, the Company adopted the 2004 Stock Compensation Plan ("2004
Plan") pursuant to which twenty-five million shares of the Company's common
stock were reserved for future issuance of common stock or common stock options
to be approved by the Board of Directors. These options may be issued to
directors, officers, employees, or consultants who perform services on behalf of
the Company at exercise prices to be approved by the Board of Directors. As of
June 30, 2004, 16,901,970 shares of common stock or stock options had been
issued under the 2004 Plan.

The following table summarizes stock option and warrant activity during fiscal
2004 and 2003:
<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                                      AVERAGE
                                                                        OPTIONS/      EXERCISE
                                                                        WARRANTS       PRICE
                                                                       ----------     --------
         <S>                                                           <C>             <C>
         Options/warrants outstanding at July 1, 2002 ...........      12,345,623      $2.33
         Granted ................................................       1,609,500       0.85
         Expired ................................................      (5,995,738)      2.62
                                                                       ----------
         Options/warrants outstanding at June 30, 2003 ..........       7,959,385       1.81
         Granted ................................................      39,405,042       0.05
         Expired ................................................      (3,103,578)      1.82
         Exercised ..............................................      (6,538,461)      0.05
                                                                       ----------
         Options/warrants outstanding at June 30, 2004...........      37,722,388       0.28
                                                                       ==========

         Exercisable at June 30, 2004 ...........................      36,508,364      $0.23
                                                                       ==========
</TABLE>

                                       51
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes information about the Company's outstanding stock
options and warrants at June 30, 2004:
<TABLE>
<CAPTION>
                                         OPTIONS/WARRANTS                       OPTIONS/WARRANTS
                                            OUTSTANDING                            EXERCISABLE
                                --------------------------------------       ------------------------
                                                WEIGHTED
                                                 AVERAGE      WEIGHTED                       WEIGHTED
                RANGE OF                        REMAINING     AVERAGE                        AVERAGE
                EXERCISE          NUMBER       CONTRACTUAL    EXERCISE         NUMBER        EXERCISE
                 PRICES         OUTSTANDING     LIFE (YRS)     PRICE         EXERCISABLE      PRICE
             ----------------------------------------------------------------------------------------
             <S>                <C>                <C>         <C>           <C>               <C>
             $0.03               9,138,427         9.98        $0.03          9,138,427        $0.03
             $0.05               6,346,155(1)      1.20         0.05          6,346,155         0.05
             $0.07              17,381,999(1)      1.22         0.07         17,381,999         0.07
             $0.25                  40,000         1.81         0.25             40,000         0.25
             $0.75                 650,000         8.10         0.75            240,000         0.75
             $0.98 - $1.00         413,612         0.92         1.00            413,612         1.00
             $1.02 - $1.25         647,100         4.77         1.24            636,900         1.24
             $1.50               1,470,155         6.25         1.50            922,617         1.50
             $1.69 - $2.44         112,000         4.18         1.84            112,000         1.84
             $2.50                 575,000         1.66         2.50            575,000         2.50
             $3.00                 592,440         5.46         3.00            446,154         3.00
             $3.25 - $3.63         205,500         1.14         3.27            205,500         3.27
             $5.00                 150,000         2.02         5.00             50,000         5.00
             ----------------------------------------------------------------------------------------
             $0.03 - $5.00      37,722,388         3.80        $0.28         36,508,364        $0.23
             ========================================================================================
</TABLE>

             (1) Represents outstanding warrants issued with convertible debt.

16.   EMPLOYEE SAVINGS, RETIREMENT AND PROFIT SHARING PLAN
Effective March 1, 2002, the Company established a tax-qualified employee
savings, retirement and profit sharing plan qualified under Section 401(k) of
the Internal Revenue Code ("the "401(k) Plan") pursuant to which eligible
employees may elect to defer a portion of their current compensation, up to
certain statutorily prescribed annual limits, and make corresponding periodic
contributions into the 401(k) Plan. Contributions to the 401(k) Plan, as well as
any income earned thereon, are not taxable to the employee until withdrawn from
the 401(k) Plan. All employees with 1,000 hours of service who have been
employed by the Company for at least one year are eligible to participate in the
401(k) Plan. The Company, at its discretion, may elect to (i) contribute a
matching percentage of the employees' overall contribution and/or (ii) make a
profit sharing contribution based on the overall profitability of the Company.
The Company did not make any contributions for the fiscal years ended June 30,
2004 and 2003.

17.   COMMITMENT AND CONTINGENCIES

General
The Company is periodically involved in litigation and administrative
proceedings primarily arising in the normal course of its business. In the
opinion of management, the Company's gross liability, if any, and without any
consideration given to the availability of indemnification or insurance
coverage, under any pending or existing litigation or administrative proceedings
would not materially affect its financial position, results of operations or
cash flows.

Patent Litigation
The Company is the plaintiff in patent infringement litigation, in which the
Company alleges willful patent infringement. The defendants have brought a
number of counterclaims, including antitrust, unfair competition, tortious
interference with business relations and patent misuse, and have asserted
unspecified general damages. In May 2003, the District Court ruled against our
assertion of patent infringement. The Company timely filed a Notice of Appeal to
the Court of Appeals for the Federal Circuit and in August 2004, the Court of
Appeals reversed the District Court's ruling and remanded the matter back to the
District Court for a new hearing. Following the remand, the Company returned to

                                       52
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

settlement negotiations with the defendant. Pursuant to these negotiations, the
parties have now entered into a Letter of Intent requiring the parties to
negotiate in good faith an agreement that would, among other things, resolve the
litigation through a license under the patent. A final agreement has not yet
been reached, and the litigation remains pending before the Idaho District
Court. Should the District Court not rule in our favor and/or we are unable to
successfully negotiate a settlement including royalties to be received, we would
be required to impair our patent, and as such, we would write down the patent to
its net realizable value through a charge to amortization expense.

Royalty Obligation Dispute on Proprietary Optics Technology
The Company licensed the use of proprietary optics technology previously
utilized in its predecessor cholesterol monitor from a principal vendor in
exchange for payment of a royalty to the vendor for each monitor manufactured
with the optics technology. Beginning in October 2002, the Company developed and
began utilizing its own proprietary optics technology in its current cholesterol
monitor. In October 2002, the Company ceased accruing and paying the royalty
obligation as the Company viewed the re-engineered optics technology used in its
current cholesterol monitor as being proprietary to the Company. The vendor
asserted in a letter to the Company that the subject optics technology was, in
their opinion, still subject to royalties under the licensing agreement.
Negotiations have continued throughout fiscal 2004 and remain ongoing as of this
date to resolve the royalty obligation dispute. The Company has accrued
approximately $257,535 and $104,104 as of June 30, 2004 and 2003, respectively,
and believes that any reasonably likely incremental royalty obligation resulting
from these negotiations would not be material to our expected future
consolidated financial statements.

Compensating Payment Provision with Principal Vendor
The Company's contract with the supplier of its dry-chemistry total cholesterol
test strips contains a provision that required the Company to make minimum
annual purchases and required certain compensating payments in the event the
Company fails to meet the minimum purchase requirements. As the Company has not
met these minimum purchase commitments, the vendor increased the price of the
test strips by 10% for fiscal 2004. Should the Company continue to not meet
these minimum purchase requirements, the vendor could require the Company to
make additional compensating payments. The dollar amount of such future
payments, if any, is currently indeterminable.

Purchase Commitments Under Marketing Contract
In February 2004, the Company entered into a marketing contract, which
contractually obligated the Company to purchase a minimum number of radio
advertising spots through January 7, 2005. As of June 30, 2004, the Company had
$864,248 of purchase obligations remaining under this contract.

                                       53
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None

ITEM 8A. CONTROLS AND PROCEDURES

On September 28, 2004, management concluded its evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures.
Disclosure controls and procedures are controls and procedures designed to
reasonably assure that information required to be disclosed in our reports filed
under the Securities Exchange Act of 1934, such as this Annual Report, is
recorded, processed, summarized and reported within the time periods prescribed
by SEC rules and regulations, and to reasonably assure that such information is
accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

Management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures will prevent all
error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's
objectives will be met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. The
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.

As of the evaluation date, our Chief Executive Officer and Chief Financial
Officer concluded that we maintain disclosure controls and procedures that are
effective in providing reasonable assurance that information required to be
disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods prescribed by SEC rules and
regulations, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and its Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.

There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
evaluation date.


ITEM 8B. OTHER INFORMATION

None

                                       54
<PAGE>

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         OUR COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission on or before October 28, 2004 pursuant to
Regulation 14A.

ITEM 10. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission on or before October 28, 2004 pursuant to
Regulation 14A.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission on or before October 28, 2004 pursuant to
Regulation 14A.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission on or before October 28, 2004 pursuant to
Regulation 14A.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K


         (a) Exhibits are listed in the Exhibit Index on page 57 of this
             Form 10-KSB, which is incorporated herein by reference.

         (b) Reports on Form 8-K.

             We filed no reports on Form 8-K during the fourth quarter of the
             period covered by this Report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission on or before October 28, 2004 pursuant to
Regulation 14A.

                                       55
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Post Falls,
Idaho, on this 28th day of September 2004.


                                LIFESTREAM TECHNOLOGIES, INC.


                                By: /s/ Christopher Maus
                                    -----------------------------------------
                                        Christopher Maus
                                    Chairman of the Board of Directors,
                                    President, and Chief Executive Officer
                                    (Principal Executive Officer)

                                By: /s/ Nikki Nessan
                                    -----------------------------------------
                                        Nikki Nessan
                                    V.P. - Finance (Principal Financial and
                                    Accounting Officer)


Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following members of the Board of Directors on behalf of the
Registrant and on this 28th day of September 2004:


/s/ Christopher Maus                      Chairman of the Board of Directors
--------------------------------
           Christopher Maus

/s/ Robert Boyle                          Director
--------------------------------
           Robert Boyle

/s/ Michael Crane                         Director
--------------------------------
           Michael Crane

/s/ William Gridley                       Director
--------------------------------
           William Gridley

/s/ Neil Luckianow                        Director
--------------------------------
           Neil Luckianow

                                       56
<PAGE>

EXHIBIT INDEX

3.1      Amended and Restated Articles of Incorporation of Lifestream
         Technologies, Inc., dated June 20, 2002 (1)

3.1.1    Certificate of Amendment to Articles of Incorporation dated May 14,
         2004 (10)

3.2      By-laws of Lifestream Technologies, Inc. (2)

4.1      Form of Convertible Notes (6)

10.1     Lease between Jacklin Land Company Limited Partnership and Lifestream
         Diagnostics, Inc., a wholly-owned subsidiary of Lifestream
         Technologies, Inc. dated as of May 19, 1998. (3)

10.2     License and Supply Agreement between Lifestream Technologies, Inc. and
         Roche Diagnostics GmbH dated December 12, 2000 (2)

10.3     Promissory Note between Lifestream Technologies, Inc. and Capital South
         Financial Services, Inc., dated May 1, 2003 (8)

10.4     Securities Purchase Agreement dated June 5, 2003. (5)

10.5     Registration Rights Agreement dated June 5, 2003 (5)

10.6     Securities Purchase Agreement dated September 10, 2003 (4)

10.7     Form of Convertible Debenture due September 10, 2006 (4)

10.8     Registration Rights Agreement dated September 10, 2003 (4)

10.9     Common Stock Purchase Warrant dated September 10, 2003 (4)

10.10    Securities Purchase Agreement dated February 19, 2004 (7)

10.11    Form of Convertible Debenture due February 19, 2006 (7)

10.12    Registration Rights Agreement dated February 19, 2004 (7)

10.13    Common Stock Purchase Warrant dated February 19, 2004 (7)

10.14    Exchange Agreement dated January 12, 2004  (9)

10.15    1998 Employee Stock Option Plan (11) *

10.16    2002 Employee Stock Option Plan (12) *

10.17    2004 Stock Compensation Plan (13) *

21.1     Subsidiaries of the Registrant. (6)

23.1     Consent of BDO Seidman, LLP, to incorporate by reference its report
         dated August 16, 2004, on the Consolidated Financial Statements of the
         Registrant in the Registrant's Registration Statement on Form S-8, No.
         333-118005.**

31.1     Certification of Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.**

31.2     Certification of Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.**

                                       57
<PAGE>

32.1     Certification of Chief Executive Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.**

32.2     Certification of Chief Financial Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.**

----------------------------------------
 * Management or compensatory agreement.
** Filed herewith.

(1)    Filed as an exhibit to our Definitive Proxy Statement filed with the
       Securities and Exchange Commission on April 24, 2002 and incorporated
       herein by reference.
(2)    Filed as an exhibit to our Annual Report on Form 10-KSB filed with the
       Securities and Exchange Commission on December 26, 1996 and incorporated
       herein by reference.
(3)    Filed as an exhibit to our Current Report on Form 8-K filed with the
       Securities and Exchange Commission on September 1, 1999 and incorporated
       herein by reference.
(4)    Filed as an exhibit to our Annual Report on Form 10-KSB filed with the
       Securities and Exchange Commission on October 15, 2003 and incorporated
       herein by reference.
(5)    Filed as an exhibit to our Current Report on Form 8-K filed with the
       Securities and Exchange Commission on June 20, 2003 and incorporated
       herein by reference.
(6)    Filed as an exhibit to our Annual Report on Form 10-KSB filed with the
       Securities and Exchange Commission on October 15, 2001 and incorporated
       herein by reference.
(7)    Filed as an exhibit to our Current Report on Form 8-K filed with the
       Securities and Exchange Commission on March 1, 2004.
(8)    Filed as an exhibit to our Registration Statement on Form SB-2 filed with
       the Securities and Exchange Commission on December 10, 2003.
(9)    Filed as an exhibit to our Registration Statement on Form SB-2 filed with
       the Securities and Exchange Commission on March 22, 2004.
(10)   Filed as an exhibit to our Registration Statement on Form SB-2 filed with
       the Securities and Exchange Commission on June 10, 2004.
(11)   Filed as an exhibit to our Definitive Proxy Statement filed with the
       Securities and Exchange Commission on May 29, 1998 and incorporated
       herein by reference.
(12)   Filed as an exhibit to our Definitive Proxy Statement filed with the
       Securities and Exchange Commission on April 24, 2002 and incorporated
       herein by reference.
(13)   Filed as an exhibit to our Registration Statement on Form S-8 filed with
       the Securities and Exchange Commission on August 6, 2004.

                                       58